Bank of America’s crisis-era acquisition of the collapsing Merrill Lynch will never enjoy the sort of “albatross around the neck from here to eternity” status that the Countrywide Financial deal has pretty much cornered. But it wouldn’t be a BofA acquisition without some sort of legal liability attached. And so it has come: a $400 to $450 million fine for some creative accounting at ML and BofAML thereafter designed to reduce the amount the banks had to keep high and dry. Now, that’s a drop in the bucket for a firm that’s paid something like $1 trillion over the last year years, but this latest impending settlement is notable for just how tremendously unsurprising it must be for BriMoy & co. after the SEC laid it out like this:
One variety was internally called “leveraged conversion,” according to people familiar with the trades. In that strategy, a small team on Bank of America’s New York equities desk arranged for a handful of clients to put up token amounts of their own money to receive loans of nearly 100 times those amounts, the people said.
The bank would arrange large trades that suited other financing needs it had, reducing its funding costs and the amount it set aside in lockup reflecting what it owed clients, the people said. The bank did billions of dollars’ worth of such trades from 2009 to 2012, they said.
Some traders dubbed elements of the strategy “fugazi P&L”—slang for phony profit-and-loss math, the Journal reported last year.