SEC CHARGES ENTITIES OF BANK OF AMERICA WITH MAKING MATERIAL MISREPRESENTATIONS IN SALE OF RMBS SECURITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Bank of America Entities with Material Misrepresentations and Omissions in Connection with an RMBS Offering

On August 6, 2013, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against Bank of America, N.A. (“BANA”), Banc of America Mortgage Securities, Inc. (“BOAMS”), and Merrill Lynch, Pierce, Fenner & Smith, Inc. f/k/a Banc of America Securities LLC (“BAS”) (collectively the “Bank of America Entities”). The Commission alleges that the Bank of America Entities made material misrepresentations and omissions in connection with the sale of residential mortgage-backed securities known as BOAMS 2008-A. Specifically, the complaint alleges that the Bank of America Entities failed to disclose the disproportionate concentration of wholesale loans (72% by unpaid principal balance) underlying BOAMS 2008-A as compared to prior BOAMS offerings. The complaint also alleges that the Bank of America Entities failed to disclose known risks associated with the high concentration of wholesale loans in BOAMS 2008-A including higher likelihood that the loans would be subject to material underwriting errors, become severely delinquent, fail early in the life of the loan, or prepay. The complaint further alleges that the Bank of America entities violated Regulation S-K and subpart Regulation AB of the Securities Act of 1933 (the “Securities Act”) by failing to disclose the material characteristics of the pool of loans underlying BOAMS 2008-A. The complaint also alleges that the Bank of America Entities made material misrepresentations and omissions in its public filings and in the loan tapes it provided to investors and rating agencies that the loans in BOAMS 2008-A complied with BANA’s underwriting standards when a material amount did not. Finally, the complaint alleges that BOAMS and BAS violated Section 5(b)(1) of the Securities Act by failing to file with the Commission certain loan tapes that it provided only to select investors.

The Commission’s complaint, filed in the United States District Court for the Western District of North Carolina, charges the Bank of America Entities with violating the antifraud provisions of the federal securities laws. The complaint alleges that that each violated Sections 17(a)(2) and 17(a)(3) of the Securities Act. The complaint also alleges that BAS and BOAMS violated Section 5(b)(1) of the Securities Act. The complaint seeks against each of the Bank of America Entities a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant Section 20(d) of the Securities Act.

The Commission would like to thank the United States Attorney’s Office for the Western District of North Carolina for its substantial assistance in this matter.

FLORIDA RESIDENT CHARGED WITH UNREGISTERED SALES OF SECURITIES

FROM:   SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Florida Resident with Unregistered Sales of Securities

On July 23, 2013, the Securities and Exchange Commission filed settled charges against Florida resident Jorge Bravo, Jr., for unlawful sales of millions of shares of a microcap company to the public without complying with the registration requirements of the Securities Act of 1933.

According to the SEC's complaint filed in the U.S. District Court for the Southern District of New York, from April 2009 until May 2010, Bravo unlawfully sold approximately 93 million shares of stock of AVVAA World Health Care Products, Inc. in unregistered transactions for proceeds of approximately $523,000. The complaint alleges that Bravo obtained the shares through three "wrap around agreements." The wrap around agreements involved debts that AVVAA supposedly owed to its officers, affiliates, or other persons closely associated with the company ("Affiliates") for unpaid compensation for services rendered. Under the wrap around agreements, the Affiliates assigned to Bravo the debts that AVVAA purportedly owed to them, and AVVAA consented to the assignment and agreed to modify the terms of the original debt obligation so that the debts now owed to Bravo were immediately convertible into shares of AVVAA common stock. According to the complaint, within weeks of entering into the first two agreements, and approximately four months after the execution of the third, Bravo began selling the shares he obtained under the agreements to the public. He then used some of the proceeds of the stock sales to pay the amounts owed to the Affiliates under the wrap around agreements. The complaint further alleges that Bravo had previously been involved in wrap around agreements, in his capacity as of president and chief executive of Cross Atlantic Commodities, Inc., a public company located in Weston, Florida, and that those wrap around agreements were subjects of a prior Commission enforcement action, SEC v. K&L International Enterprises, Inc., 6:09-cv-1638-GAP-KRS (M.D. Fla. Sept. 24, 2009). Bravo was not charged in that matter.

Without admitting or denying the SEC's allegations, Bravo agreed to settle the case against him by consenting to the entry of a final judgment permanently enjoining him from future violations of Sections 5(a) and 5(c) of the Securities Act; permanently enjoining him from participating in any offering of penny stock; and requiring him to pay disgorgement of $ 392,000, the amount of his ill-gotten gains, plus prejudgment interest of $ 53,866 and a civil penalty in the amount of $150,000. The settlement must be approved by the court.

The SEC's investigation was conducted by New York Regional Office Enforcement staff Karen Lee, Christopher Ferrante, and Leslie Kazon. The Commission acknowledges the assistance of FINRA, the British Columbia Securities Commission, and the Ontario Securities Commission in this matter.