Bank of America is paying $7.65M to settle federal charges that it violated record keeping and internal controls in overstating its capital levels.
The issue goes back to 2009 when BOA acquired Merrill Lynch. During the acquisition, the company assumed a large portfolio of structured notes and other financials instruments. Bank of America was required to post losses on the notes as they matured in real time. But with each year since 2009 as more and more notes matured, Bank of America overstated its regulatory capital by greater and greater amounts in its regulatory filings, eventually reaching $4 billion.
Apparently once the company found the issue, they self-reported the error and voluntarily took steps to correct the problem. This act helped the bank in the eyes of SEC and led to the amount of penalty.
The bigger question is how a bank for almost 5 years not realize that its regulatory capital is overstated! And then when they declared the error why was the penalty only 0.2% of the error!