Bank of America 2004 Annual Report Download - page 130

Mutual Fund Operations Matters
On March 15, 2004, the Corporation announced agreements in prin-
ciple with the New York Attorney General (the NYAG) and the SEC to
settle matters related to late trading and market timing of mutual
funds. The Corporation agreed, without admitting or denying wrong-
doing, to (1) pay $250 million in disgorgement and $125 million in
civil penalties; (2) the issuance of an order against three subsidiaries
of the Corporation, Banc of America Capital Management, LLC
(BACAP), BACAP Distributors, LLC (BACAP Distributors), and BAS to
cease and desist from violations of the federal securities laws, as
well as the implementation of enhanced governance and compliance
procedures; (3) retain an independent consultant to review BACAP’s,
BACAP Distributor’s and BAS applicable compliance, control and
other policies and procedures; and (4) exit the unaffiliated introduc-
ing broker/dealer clearing business. In addition, the agreement with
the NYAG provides for reduction of mutual fund management fees of
the Nations Funds by $80 million over five years. These settlements
were finalized with the NYAG and the SEC on February 9, 2005.
On February 24, 2004, the SEC filed a civil action in the U.S.
District Court for the District of Massachusetts against two
FleetBoston subsidiaries, Columbia Management Advisors, Inc. and
Columbia Funds Distributor, Inc. (the Columbia Subsidiaries), alleging
that the Columbia Subsidiaries allowed certain customers to engage
in short-term or excessive trading without disclosing this fact in the
relevant fund prospectuses. The complaint alleged violations of fed-
eral securities laws in relation to at least nine trading arrangements
pertaining to these customers during the period 1998-2003, and
requested injunctive and monetary relief. A similar action was filed
the same day in a state court in New York by the NYAG, claiming relief
under New York state statutes. On March 15, 2004, FleetBoston and
its subsidiaries announced agreements in principle with the NYAG
and the SEC, agreeing, without admitting or denying wrongdoing, to
(1) pay $70 million in disgorgement and $70 million in civil penalties;
(2) the issuance of an order requiring the Columbia Subsidiaries to
cease and desist from violations of the federal securities laws, as
well as the implementation of enhanced governance and compliance
procedures; and (3) retain an independent consultant to review the
Columbia Subsidiaries’ applicable compliance, control and other poli-
cies and procedures. In addition, the agreement with the NYAG pro-
vides for reduction of mutual fund management fees of the Columbia
funds by $80 million over five years. These settlements were finalized
with the NYAG and the SEC on February 9, 2005.
On February 9, 2005, the Corporation entered an agreement
with the Federal Reserve Bank of Richmond, and Bank of America,
N.A. entered an agreement with the Office of the Comptroller of the
Currency (OCC). Under the agreements, the Corporation and Bank of
America, N.A. agreed to continue with existing plans to implement
remedial actions. The federal banking regulators did not impose any
monetary penalties or fines under the agreements.
The Corporation is continuing to respond to inquiries from fed-
eral and state regulatory and law enforcement agencies concerning
mutual fund related matters.
Private lawsuits seeking unspecified damages concerning
mutual fund trading against the Corporation and its pre-FleetBoston-
merger subsidiaries include putative class actions purportedly
brought on behalf of shareholders in Nations Funds mutual funds,
derivative actions brought on behalf of one or more Nations Funds
mutual funds by Nations Funds shareholders, putative ERISA class
actions brought on behalf of participants in the Corporation’s 401(k)
plan, derivative actions brought against the Corporation’s directors on
behalf of the Corporation by shareholders in the Corporation, class
actions and derivative actions brought by shareholders in third-party
mutual funds alleging that the Corporation or its subsidiaries facili-
tated improper trading in those funds, and a private attorney general
action brought under California law. The lawsuits filed to date with
respect to FleetBoston and its subsidiaries include putative class
actions purportedly brought on behalf of shareholders in Columbia
mutual funds, derivative actions brought on behalf of one or more
Columbia mutual funds or trusts by Columbia mutual fund share-
holders, and an individual shareholder action.
On February 20, 2004, the Judicial Panel on Multidistrict
Litigation (MDL Panel) ordered that all lawsuits pending in federal
court with respect to alleged late trading or market timing in mutual
funds be transferred to the U.S. District Court for the District of
Maryland for coordinated pretrial proceedings. The private lawsuits
have been transferred to the court with the exception of one case
that was remanded to a state court in Illinois and two cases where
motions to remand to state court remain pending. On September 29,
2004, plaintiffs filed consolidated amended complaints in the U.S.
District Court for the District of Maryland. Motions to dismiss the con-
solidated amended complaints are to be filed on February 25, 2005.
Parmalat Finanziaria S.p.A.
On December 24, 2003, Parmalat Finanziaria S.p.A. was admitted
into insolvency proceedings in Italy, known as “extraordinary admin-
istration.” The Corporation, through certain of its subsidiaries, includ-
ing Bank of America, N.A., provided financial services and extended
credit to Parmalat and its related entities. On June 21, 2004,
Extraordinary Commissioner Dr. Enrico Bondi filed with the Italian
Ministry of Production Activities a plan of reorganization for the
restructuring of the companies of the Parmalat group that are
included in the Italian extraordinary administration proceeding.
In July 2004, the Italian Ministry of Production Activities
approved a restructuring plan, as amended, for the Parmalat group
companies that are included in the Italian extraordinary administra-
tion proceeding. This plan will be voted on by creditors whose claims
the Court of Parma recognizes as valid. Voting is expected to take
place by June 30, 2005. In August 2004, the Extraordinary
Commissioner filed objections to certain claims with the Court of
Parma, Italy. In that filing, the Extraordinary Commissioner rejected all
the Corporation’s claims on various grounds. On September 18,
2004, the Corporation filed its responses to the filing with the Court
of Parma and on December 16, 2004, the court admitted and
accepted the majority of the Corporation’s claims. The Corporation
will appeal the court’s decision regarding the portion of its claims
which were not admitted.
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