UNITED STATES OF AMERICA
Before the
COMMODITY FUTURES TRADING COMMISSION
In the Matter of:
Bank of America, N.A., BofA
Securities, Inc., and Merrill Lynch,
Pierce, Fenner & Smith
Incorporated,
Respondents.
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CFTC Docket No. 22-38
ORDER INSTITUTING PROCEEDINGS PURSUANT TO
SECTION 6(c) AND (d) OF THE COMMODITY EXCHANGE ACT, MAKING
FINDINGS, AND IMPOSING REMEDIAL SANCTIONS
I. INTRODUCTION
The Commodity Futures Trading Commission (“Commission”) has reason to believe that
from at least 2015 to the present (“Relevant Period”), Bank of America, N.A., BofA Securities,
Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (collectively, “BofA” or
“Respondents”) violated, as set forth below, Sections 4g, 4s(f)(1)(C), 4s(g)(1) and (3), and
4s(h)(1)(B) of the Commodity Exchange Act (“Act”), 7 U.S.C. §§ 6g, 6s(f)(1)(C), 6s(g)(1), (3),
6s(h)(1)(B), and Commission Regulations (“Regulations”) 1.31, 1.35, 23.201(a), 23.202(a)(1)
and (b)(1), 23.602(a), and 166.3, 17 C.F.R. §§ 1.31, 1.35, 23.201(a), 23.202(a)(1), (b)(1),
23.602(a), 166.3 (2021). Therefore, the Commission deems it appropriate and in the public
interest that public administrative proceedings be, and hereby are, instituted to determine
whether Respondents engaged in the violations set forth herein and to determine whether any
order should be issued imposing remedial sanctions.
In anticipation of the institution of an administrative proceeding, Respondents have
submitted an Offer of Settlement (“Offer”), which the Commission has determined to accept.
Respondents admit the facts set forth in Section II below, except for the facts set forth in
Sections II.A.2 and II.C.2, which facts they neither admit nor deny, acknowledge that their
conduct violated the Act and Regulations and consent to the entry of this Order Instituting
Proceedings Pursuant to Section 6(c) and (d) of the Commodity Exchange Act, Making Findings,
and Imposing Remedial Sanctions (“Order”), and acknowledge service of this Order.
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Respondents agree that the findings of fact and conclusions of law in this Order shall be taken as true and correct
and be given preclusive effect without further proof in this proceeding and any other proceeding brought by the
RECEIVED CFTC
Office of Proceedings
Proceedings Clerk
12:25 pm, Sep 27, 2022
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II. FINDINGS
The Commission finds the following:
A. SUMMARY
1. BofA Employee Use of Unapproved Communication Methods
The Act and Regulations impose recordkeeping and supervision requirements on
Commission registrants to ensure that they responsibly discharge their crucial role in our
markets. Compliance with these requirements is essential to the Commission’s efforts to
promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound
regulation.
In or about May 2021, Commission staff brought to BofA’s attention the potential use of
unapproved communication methods by at least one BofA trader, and head (“Desk Head”) of one
of BofA’s trading desks (“Desk”). Notwithstanding Commission staff flagging this issue, traders
on the Desk continued to use unapproved messaging methods to conduct firm business for
several months. In October 2021, Commission staff again flagged to BofA that it had serious
concerns regarding the use of unapproved methods by BofA employees.
Thereafter, BofA voluntarily undertook an investigation that included a review of the
potential use of unapproved communication methods by members of the Desk. In addition,
BofA completed a separate but related review of the potential use of unapproved communication
methods by other BofA employees. BofA also disclosed to Commission staff that in 2018, it had
undertaken a review of potential employee use of unapproved communication methods. These
reviews by BofA demonstrated that there was widespread and longstanding use of unapproved
methods to engage in business-related communications by BofA employees. BofA also
identified a communication that took place on an unapproved communication method that should
have been but was not promptly produced in response to a subpoena issued by Commission staff.
2. BofA Employee’s Deletion of Business-Related Communications and
Request that Third-Party Brokers Delete Business-Related
Communications
The Commission’s investigation also revealed that the Desk had a longstanding practice
of using unapproved methods to communicate about business on their personal devices,
including at the direction of the Desk Head. The Desk Head routinely directed traders on the
Desk to delete messages with business contacts from their personal devices, and traders on the
Desk had a practice of deleting messages, including business-related messages, from their
personal devices. In March 2021, at a point in time when BofA was aware that Commission
staff were investigating certain trading on the Desk, the Desk Head instructed three of his
subordinates to delete messages from their personal devices and to communicate via the
Commission or to which the Commission is a party or claimant, including but not limited to, a proceeding in
bankruptcy or receivership. Respondents do not consent to the use of the Offer or this Order, or the findings or
conclusions in this Order, by any other party in any other proceeding.
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unapproved messaging application Signal when off the Desk, and to have such communications
set to auto-delete. The Desk Head made similar requests to two third-party brokers. The Desk
used their personal devices for business communications even though the traders had been issued
company-owned devices that would have allowed them to exchange text messages consistent
with BofA’s policies and in a manner BofA could monitor. Despite BofA being alerted in May
2021 by the Commission staff of his use of off-channel communications, the Desk Head
continued to supervise the desk until he resigned in 2022.
3. BofA Violated Commission Recordkeeping and Supervision
Requirements
Overall, during the Relevant Period, BofA employees, including at senior levels,
communicated both internally and externally using unapproved methods, including via personal
text messages, WhatsApp, and Signal. These written communications were sent and received by
BofA employees and included messages related to BofA’s businesses as Commission registrants
that were required to be maintained under Commission-mandated recordkeeping requirements.
These written communications were generally not maintained and preserved by BofA, and BofA
generally would not have been able to furnish the communications promptly to a Commission
representative if and when requested. As a result, BofA violated, as set forth below, Sections 4g,
4s(f)(1)(C), and 4s(g)(1) and (3) of the Act, 7 U.S.C. §§ 6g, 6s(f)(1)(C), 6s(g)(1), (3), and
Regulations 1.31, 1.35, 23.201(a), and 23.202(a)(1) and (b)(1), 17 C.F.R. §§ 1.31, 1.35,
23.201(a), 23.202(a)(1), (b)(1) (2021).
In addition, the widespread use of unauthorized communication methods by BofA’s
employees to conduct BofA business violated BofA’s own policies and procedures, which
prohibited such communications. BofA did not maintain adequate internal controls with respect
to business-related communications on unapproved communication methods. Indeed, some of
the very same supervisory personnel at BofA responsible for ensuring compliance with BofA’s
policies and procedures themselves utilized unapproved methods of communication to engage in
business-related communications, in violation of company policy. Because BofA failed to
implement a diligent supervisory system to ensure compliance with Commission recordkeeping
requirements and the BofA’s own policies and procedures, and because the widespread use of
unauthorized communication methods resulted in BofA’s failure to maintain Commission-
required records, BofA failed to diligently supervise matters related to its business as a
Commission registrant in violation of Section 4s(h)(1)(B) of the Act, 7 U.S.C. § 6s(h)(1)(B), and
Regulations 166.3 and 23.602(a), 17 C.F.R. §§ 166.3, 23.602(a) (2021), as set forth below.
B. RESPONDENTS
Bank of America, N.A. is a national banking association with its main office in Charlotte,
North Carolina. Bank of America, N.A. is provisionally registered with the Commission as a
swap dealer.
BofA Securities, Inc. is a company with its principal place of business in New York, New
York. BofA Securities, Inc. is registered with the Commission as a Futures Commission
Merchant (“FCM”).
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Merrill Lynch, Pierce, Fenner & Smith Incorporated is a company with its principal place
of business in New York, New York. Merrill Lynch, Pierce, Fenner & Smith Incorporated was
registered with the Commission as an FCM until May 14, 2019 and is currently registered with
the Commission as an introducing broker.
C. FACTS
1. BofA’s Supervision and Record-Keeping Failures
During the course of a Commission investigation into certain of BofA’s trading,
Commission staff learned, based on information provided by a third party, of BofA employee use
of non-company approved communication methods, like WhatsApp, on personal devices.
In May 2021, Commission staff first alerted BofA that Commission staff were aware of
potential employee use of unapproved communications methods, and that Commission staff
intended to interview a BofA supervisor regarding unapproved channel communications on the
Desk. In October 2021, Commission staff again flagged to BofA that it had serious concerns
regarding the use of unapproved methods by BofA employees on the Desk.
Thereafter, BofA conducted a review of certain of its employees’ use of unapproved
communication methods, including the use of unapproved communication methods on the Desk.
Around the same time, BofA conducted a separate but related review of the use of unapproved
communication methods by its employees. In addition, BofA disclosed that it had conducted a
review of similar issues in 2018 as to eleven employees. These reviews by BofA demonstrated
the widespread and longstanding use of unapproved communication methods by BofA
employees—including senior-level employees—to engage in firm business, including relating to
trading in CFTC regulated derivatives markets.
Overall, the reviews revealed that numerous traders and desk heads, participated in
extensive internal and external discussions using unapproved communication methods. For
example, BofA’s 2018 review identified that one managing director, who is a co-head of global
rates trading, had hundreds of messages using unapproved methods. Further, out of an analysis
of the personal devices of thirty BofA employees, including three associated persons of BofA’s
Futures Commission Merchant business, the vast majority had violated BofA’s communications
policies and procedures by using personal text message and other unapproved methods to
communicate with coworkers and other market participants. Moreover, the reviews conducted
by BofA revealed that dozens more BofA employees (including numerous supervisors and
managing directors) conducted firm business via unapproved methods. The communications
included messages among BofA personnel, as well as with brokers and other market participants.
Certain of these communications constituted records that were required to be kept pursuant to
Commission recordkeeping requirements, and these communications were generally not
preserved and maintained by BofA.
BofA also identified that in at least one instance, an unapproved-channel communication
between BofA employees that was responsive to an earlier subpoena issued to BofA by
Commission staff, but was not promptly produced in response to the subpoena because BofA did
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not collect or review its traders’ off-channel messages. BofA had not previously collected this
message or produced it to the Commission because the message was sent or received through an
unapproved communication method on an employee’s personal device. Further, because
business-related communications that occurred through an unapproved communication method
on certain employees’ personal devices were routinely deleted, BofA could not confirm that it
had completely responded to all prior Commission subpoenas.
Importantly, during the Relevant Period, BofA’s policies and procedures broadly
prohibited employees from using unapproved methods, such as personal text messages and
WhatsApp, to engage in business-related communications. As part of its procedures, BofA also
provided certain employees with company-issued personal devices in order for them to exchange
messages in a way that the bank could monitor and supervise them. However, BofA did not take
adequate steps to ensure that its employees were using those devices or to detect that certain
employees were frequently failing to use those devices for all business-related communications.
Messages sent through BofA-approved communications methods were monitored,
subject to review, and when appropriate, archived. By contrast, messages sent using unapproved
communication methods, including over personal WhatsApp, email, and text messages, were
generally not monitored, subject to review, or archived.
As a result of BofA’s failure to ensure that employees—including supervisors and senior-
level employees—complied with BofA’s communications policies and procedures, BofA failed
to maintain thousands of business-related communications, including communications in
connection with its Futures Commission Merchant and Swap Dealer businesses, and thus failed
diligently to supervise its businesses as Commission registrants. These supervision failures
resulted in the widespread use of unapproved methods of communication by many BofA
employees in violation of BofA’s policies and procedures, as well as a widespread failure to
maintain certain records required to be maintained pursuant to Commission recordkeeping
requirements.
BofA’s recordkeeping and supervision failures were company-wide and involved
employees at all levels of authority. Moreover, employees’ use of unapproved communication
methods was not hidden within BofA. To the contrary, certain supervisors—the very people
responsible for supervising employees to prevent this misconduct—routinely communicated
using unapproved methods on their personal devices. In fact, managing directors and senior
supervisors responsible for implementing BofA’s policies and procedures, and for overseeing
employees’ compliance with those policies and procedures, themselves failed to comply with
BofA policies by communicating using unapproved methods on their personal devices about
BofA’s Commission-regulated businesses.
2. BofA Employee’s Deletion of Business-Related Communications and Request
that Third-Party Brokers Delete Business-Related Communications
As a stark example of BofA’s failure to enforce its communications policies, from at least
fall 2015 until approximately August 2021, members of the Desk regularly used unapproved
communication methods to communicate, including about BofA’s Commission-regulated
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business and, in fact, took steps to ensure that those messages were not retained or monitored.
Further, certain traders on the Desk used their personal devices for these messages
notwithstanding the fact that starting in 2020, BofA began issuing personal devices with
company-approved communication methods that the traders could and should have been using
instead.
Initially, starting at least around the fall of 2015, certain traders on the Desk used Short
Message Service (“SMS”), the basic messaging service of cell phones, to engage in a group chat.
In late 2020 or early 2021, the Desk Head, who was a managing director, instructed several
subordinates on the desk to switch their SMS messages to WhatsApp. The Desk Head also
orally reminded his subordinates that they—like he—should delete messages from their personal
devices, which included business-related messages, on a routine basis. As one trader on the
Desk wrote to another BofA employee in December 2020: “We [i.e., traders on the swaps desk]
use WhatsApp all the time but / We delete convos [conversations] / Regularly.” Deletion
instructions from the Desk Head became more frequent during the first quarter of 2021.
Additionally, on a Sunday morning at the end of February 2021, the Desk Head called a
broker at a third-party swaps brokerage firm, to convey, in sum and substance, that the broker
should delete the communications between them from his personal device, which included
business-related communications. The Desk Head also asked the broker to contact the broker’s
co-worker and request that the co-worker delete messages with a BofA trader. As a result of the
Desk Head’s request, the broker deleted messages he had with the Desk Head.
In early March 2021, the Desk Head asked the broker to start using the messaging
application Signal for their personal-device communications. The same week, the Desk Head
messaged another broker at a separate swaps brokerage firm and asked him to stop using SMS,
to delete the SMS messages between them (“no more sms” / “delete all”), and to use Signal for
further personal-device communications.
Around the same time, the Desk Head began a Signal group chat with three subordinate
traders on the Desk. Shortly thereafter, the Desk Head instructed one of those traders to set the
desk group chat messages to delete (and thus become unrecoverable) after one day. As a result
of the Desk Head’s instruction to set the messages to delete, messages within the group Signal
chat were deleted from early March 2021 until the end of May 2021.
In May 2021, Commission staff indicated to BofA their interest in speaking with the
Desk Head about off-channel communications. Notwithstanding that Commission staff
specifically raised this issue, traders on the Desk continued to use Signal for business-related
communications. The Desk Head, at approximately the same time, disabled the one-day delete
setting on the Desk’s group Signal chat (such that the messages were retained), and began to
instruct the traders on the Desk to conduct business-related communications over bank-approved
and monitored channels. However, between late May and early August 2021, approximately 250
messages were still sent through the Desk’s group Signal chat, including messages where the
Desk Head and three traders at times communicated about specific trades and positions, and
where on certain occasions the traders sought the Desk Head’s sign-off or advice before
engaging in particular transactions. During this time, the participants to the group Signal chat
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sent messages, if not daily, at least several times a week. It was not until August 2021 that the
Desk Head and traders closed their Signal chat. Despite BofA being alerted in May 2021 by the
Commission staff of his use of off-channel communications, the Desk Head continued to
supervise the desk until he resigned in 2022.
Although BofA had policies in place that prohibited employees from communicating
about business on unapproved channels, the bank’s controls to ensure that those policies were
being followed were inadequate. Despite issuing its traders mobile devices with company-
approved communication methods, BofA did not take adequate steps to ensure employees were
using those devices and BofA’s controls were not adequate to detect that employees were
frequently not using those devices for all business-related communications. Further, BofA’s
training of its staff on, and enforcement of, its communications and recordkeeping policies and
procedures were inadequate to deter members of the Desk, including its supervisor, from
violating those policies for several years. Indeed, Signal is designed with encryption that makes
capturing and reviewing messages difficult. For that reason, BofA may not have been able to
review and monitor such messages even were the bank aware of them, making such messages
effectively unmonitorable.
III. LEGAL DISCUSSION
A. Bank of America, N.A.’s Failure to Maintain Required Records in Violation
of Sections 4s(f)(1)(C) and 4s(g)(1) and (3) of the Act and Regulations
23.201(a) and 23.202(a)(1) and (b)(1)
Section 4s(f)(1)(C) of the Act obligates swap dealers to keep “books and records of all
activities related to its business as a swap dealer . . . in such form and manner and for such period
as may be prescribed by the Commission by rule or regulation” and those books and records
must be kept “open to inspection and examination by any representative of the Commission.”
7 U.S.C. § 6s(f)(1)(C); see also Section 4s(g)(1) and (3) of the Act, 7 U.S.C. § 6s(g)(1), (3)
(requiring swap dealers to keep daily trading and counterparty records). These statutes are
implemented, among other places, at Regulations 23.201(a) and 23.202(a)(1) and (b)(1),
17 C.F.R. §§ 23.201(a), 23.202(a)(1), (b)(1) (2021).
Regulation 23.201(a) obligates a swap dealer to “keep full, complete, and systematic
records, together with all pertinent data and memoranda, of all its swaps activities,” including
“[r]ecords of each transaction, including all documents on which transaction information is
originally recorded.” Regulation 23.202(a)(1) and (b)(1) requires, in relevant part, every swap
dealer to keep daily trading records of all swaps and related cash and forward transactions it
executes including, specifically, a record of oral and written communications provided or
received concerning quotes, solicitations, bids, offers, instructions, trading, and prices that led to
the execution of a swap transaction or the conclusion of a related cash or forward transaction.
During the Relevant Period, as a result of the widespread employee use of unapproved
communication methods, Bank of America, N.A. failed to maintain Commission-required
transaction records and pre-execution communications. By this conduct, Bank of America, N.A.
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violated Sections 4s(f)(1)(C) and 4s(g)(1) and (3) of the Act and Regulations 23.201(a) and
23.202(a)(1) and (b)(1).
B. BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated’s Failure to Keep Required Records in Violation of Section 4g
of the Act and Regulation 1.35
Section 4g of the Act requires FCMs and other registrants to create and keep books and
records pertaining to transactions and positions in such form and manner and for such period as
may be required by the Commission. 7 U.S.C. § 6g. Regulation 1.35(a)(1), 17 C.F.R.
§ 1.35(a)(1) (2021), sets forth some of the books and records that are required to be created and
maintained by FCMs. Specifically, an FCM must:
(i) Keep full, complete, and systematic records . . . of all transactions relating to
its business of dealing in commodity interests . . . which shall include all orders
(filled, unfilled, or canceled), . . . and all other records, which have been prepared
in the course of its business of dealing in commodity interests . . . .
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(iii) Keep all oral and written communications provided or received concerning
quotes, solicitations, bids, offers, instructions, trading, and prices that lead to the
execution of a transaction in a commodity interest . . . whether transmitted by
telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail,
mobile device, or other digital or electronic media . . . .
With the exception of pre-trade communications, all such records are required to be “kept in a
form and manner that allows for the identification of a particular transaction.” Regulation
1.35(a)(5), 17 C.F.R. § 1.35(a)(5) (2021).
As a result of the widespread use of unapproved methods of communication by their
employees, which communications were not preserved and maintained, BofA Securities Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated failed to keep full, complete, and systematic
records of all transactions relating to its business of dealing in commodity interests, in violation
of Section 4g of the Act and Regulation 1.35.
C. Bank of America, N.A., BofA Securities, Inc., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated’s Failure to Keep Records in Required
Manner in Violation of Regulation 1.31
Regulation 1.31(b)(4), 17 C.F.R. § 1.31(b)(4) (2021), requires that registrants keep all
books and records that are required to be maintained under the Act and Regulations in such
manner as to make them “readily accessible” for a period of two years for paper records and for
the duration of the retention period for electronic records. Upon request of the Commission, all
of these documents are required to be “promptly” produced. Regulation 1.31(d), 17 C.F.R.
§ 1.31(d) (2021). Regulation 23.203(b)(1), 17 C.F.R. § 23.203(b)(1) (2021), requires that
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records required to be kept pursuant to Part 23 of the Regulations, be kept in accordance with
Regulation 1.31, 17 C.F.R. § 1.31 (2021).
By failing to keep all Commission-required records in such a manner as to make them
“readily accessible,” Bank of America, N.A., BofA Securities, Inc., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated violated Regulation 1.31. In addition, Bank of America, N.A.,
BofA Securities, Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated violated
Regulation 1.31 by not promptly producing such communications upon request in connection
with the Commission’s investigation, as described above.
D. Bank of America, N.A.’s Failure to Supervise Diligently in Violation of
Section 4s(h)(1)(B) of the Act and Regulation 23.602(a)
Section 4s(h)(1)(B) of the Act, 7 U.S.C. § 6s(h)(1)(B), requires “diligent supervision of
the business of the registered swap dealer[.]” Regulation 23.602(a) requires that each swap
dealer “shall establish and maintain a system to supervise, and shall diligently supervise, all
activities relating to its business performed by its partners, members, officers, employees, and
agents (or persons occupying a similar status or performing a similar function).” 17 C.F.R.
§ 23.602(a) (2021). The operative language of Regulation 23.602(a) is similar to the language of
the Commission’s longstanding supervision regulation for futures and options, Regulation 166.3,
17 C.F.R. § 166.3 (2021).
Under Regulation 23.602(a), a violation is demonstrated by showing either that: (1) the
registrant’s supervisory system was generally inadequate; or (2) the registrant failed to perform
its supervisory duties diligently. See In re JPMorgan Chase Bank, N.A., CFTC No. 22-07, 2021
WL 6098347, at *6 (Dec. 17, 2021) (consent order); see also In re Commerzbank AG, CFTC No.
19-03, 2018 WL 5921385, at *10-11 (Nov. 8, 2018) (consent order) (noting textual similarities
between Regulation 23.602 and Regulation 166.3, applying case law concerning Regulation
166.3, and citing In re Murlas Commodities, Inc., CFTC No. 85-29, 1995 WL 523563, at *9
(Sept. 1, 1995), and In re Paragon Futures Assoc., CFTC No. 88-18, 1992 WL 74261, at *14
(Apr. 1, 1992)); In re INTL FCStone Markets, LLC, CFTC No. 15-27, 2015 WL 4980321, at *3
(Aug. 19, 2015) (consent order) (same). Either showing “alone is sufficient to establish a
violation of the supervision requirement.” Commerzbank, 2018 WL 5921385, at *10
(interpreting Regulation 23.602 in light of Regulation 166.3 precedents). No evidence of an
underlying violation is necessary. In re Collins, CFTC No. 94-13, 1997 WL 761927, at *10
(Dec. 10, 1997) (interpreting Regulation 166.3). Evidence of violations that “‘should be detected
by a diligent system of supervision, either because of the nature of the violations or because the
violations have occurred repeatedly,’ is probative of a failure to supervise.” See In re Bank of
Nova Scotia, CFTC No. 20-26, 2020 WL 4926053, at *10 (Aug. 19, 2020) (consent order)
(quoting In re Société Générale Int’l Ltd., CFTC No. 19-38, 2009 WL 4915485, at *7 (Sept. 30,
2019) (consent order)).
Bank of America, N.A. failed to supervise its swap dealer business activities diligently
during the Relevant Period. Bank of America, N.A. failed to maintain an adequate supervisory
system to ensure that employees did not utilize unapproved methods to engage in
communications relating to its business, including the swap dealer business. Bank of America,
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N.A.’s failure to supervise is demonstrated by its failure to detect, prevent, and remediate
repeated violations of the Commission’s recordkeeping requirements and company policies and
procedures. Supervisory personnel failed to ensure that employees complied with Bank of
America, N.A.’s Commission recordkeeping requirements and firm communications policies and
in some instances themselves violated the policies. These supervision failures also resulted in
the failure to keep and maintain Commission-required records, the failure to maintain the records
in such a manner as to make them readily available, and the failure to produce the records
promptly upon request. By this conduct, Bank of America, N.A. failed to supervise diligently its
officers, employees, and agents, in violation of Section 4s(h)(1)(B) of the Act and Regulation
23.602(a).
E. BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated’s Failure to Diligently Supervise in Violation of Regulation
166.3
Regulation 166.3 states:
Each Commission registrant, except an associated person who has no supervisory
duties, must diligently supervise the handling by its partners, officers, employees
and agents (or persons occupying a similar status or performing a similar
function) of all commodity interest accounts carried, operated, advised or
introduced by the registrant and all other activities of its partners, officers,
employees and agents (or persons occupying a similar status or performing a
similar function) relating to its business as a Commission registrant.
17 C.F.R. § 166.3 (2021).
A violation under Regulation 166.3 is an independent violation for which no underlying
violation is necessary. See Collins, 1997 WL 761927, at *10. A violation of Regulation 166.3 is
demonstrated by showing either that: (1) the registrant’s supervisory system was generally
inadequate; or (2) the registrant failed to perform its supervisory duties diligently. Murlas
Commodities, Inc., 1995 WL 523563, at *9; Sansom Refining Co. v. Drexel Burnham Lambert,
Inc., CFTC No. 82-R448, 1990 WL 282783, at *11 (Feb. 16, 1990) (noting that, under
Regulation 166.3, registrants have “duty to develop procedures for the detection and deterrence
of possible wrongdoing by [their] agents” (internal quotation omitted)); In re GNP Commodities,
Inc., CFTC No. 89-1, 1992 WL 201158, at *17-19 (Aug. 11, 1992) (providing that, even if an
adequate supervisory system is in place, Regulation 166.3 can still be violated if the supervisory
system is not diligently administered); see also In re Rosenthall Collins Grp., LLC, CFTC No.
12-18, 2012 WL 1242406, at *6 (Apr. 12, 2012) (consent order) (respondent failed to perform
supervisory duties diligently by not following its compliance procedures that were in place).
Evidence of violations that “should be detected by a diligent system of supervision, either
because of the nature of the violations or because the violations have occurred repeatedly” is
probative of a failure to diligently supervise. In re Paragon Futures Assoc., CFTC No. 88-18,
1992 WL 74261, at *14 (Apr. 1, 1992) (“The focus of any proceeding to determine whether Rule
166.3 has been violated will be on whether [a] review [has] occurred and, if it did, whether it was
‘diligent.’”).
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BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated failed to
supervise their business as a Commission registrant by failing to maintain adequate supervisory
systems to ensure that employees complied with Commission recordkeeping requirements and
company policies and procedures that prohibited business-related communications on
unapproved methods of communication. The inadequacy of BofA Securities, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated’s supervisory systems is demonstrated by the
longstanding and repeated violations of BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated’s Commission recordkeeping regulations and company policies and
procedures, including by supervisory personnel, and the fact that the supervisory failures resulted
in the repeated failure to maintain Commission-required records, to ensure that the required
records were readily accessible, and that the records could be promptly produced upon request.
By this conduct, BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
failed to supervise diligently its officers, employees, and agents in violation of Regulation 166.3.
IV. FINDINGS OF VIOLATIONS
Based on the foregoing, the Commission finds that, during the Relevant Period, Bank of
America, N.A. violated Sections 4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) of the Act, 7
U.S.C. §§ 6s(f)(1)(C), 6s(g)(1), (3), 6s(h)(1)(B), and Regulations 1.31, 23.201(a), 23.202(a)(1)
and (b)(1), and 23.602(a), 17 C.F.R. §§ 1.31, 23.201(a), 23.202(a)(1), (b)(1), 23.602(a) (2021);
and BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated violated
Section 4g of the Act, 7 U.S.C. § 6g, and Regulations 1.31, 1.35, and 166.3, 17 C.F.R. §§ 1.31,
1.35, 166.3 (2021).
V. OFFER OF SETTLEMENT
Respondents have submitted the Offer in which they:
A. Acknowledge service of this Order;
B. Admit the facts described in Sections II above, except for the facts set forth in Sections
II.A.2 and II.C.2, which facts they neither admit nor deny, and acknowledge that their
conduct violated the Act and Regulations;
C. Admit the jurisdiction of the Commission with respect to all matters set forth in this
Order and for any action or proceeding brought or authorized by the Commission based
on violation of or enforcement of this Order;
D. Waive:
1. The filing and service of a complaint and notice of hearing;
2. A hearing;
3. All post-hearing procedures;
4. Judicial review by any court;
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5. Any and all objections to the participation by any member of the Commission’s
staff in the Commission’s consideration of the Offer;
6. Any and all claims that they may possess under the Equal Access to Justice Act,
5 U.S.C. § 504, and 28 U.S.C. § 2412, and/or the rules promulgated by the
Commission in conformity therewith, Part 148 of the Regulations, 17 C.F.R.
pt. 148 (2021), relating to, or arising from, this proceeding;
7. Any and all claims that they may possess under the Small Business Regulatory
Enforcement Fairness Act of 1996, Pub. L. No. 104-121, tit. II, §§ 201–253, 110
Stat. 847, 857–74 (codified as amended at 28 U.S.C. § 2412 and in scattered
sections of 5 U.S.C. and 15 U.S.C.), relating to, or arising from, this proceeding;
and
8. Any claims of Double Jeopardy based on the institution of this proceeding or the
entry in this proceeding of any order imposing a civil monetary penalty or any
other relief, including this Order;
E. Stipulate that the record basis on which this Order is entered shall consist solely of the
findings contained in this Order to which Respondents have consented in the Offer; and
F. Consent, solely on the basis of the Offer, to the Commission’s entry of this Order that:
1. Makes findings by the Commission that Bank of America, N.A. violated Sections
4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) of the Act, 7 U.S.C. §§ 6s(f)(1)(C),
6s(g)(1), (3), 6s(h)(1)(B), and Regulations 1.31, 23.201(a), 23.202(a)(1) and (b)(1),
and 23.602(a), 17 C.F.R. §§ 1.31, 23.201(a), 23.202(a)(1), (b)(1), 23.602(a)
(2021); and BofA Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated violated Section 4g of the Act, 7 U.S.C. § 6g, and Regulations 1.31,
1.35 and 166.3, 17 C.F.R. §§ 1.31, 1.35, 166.3 (2021);
2. Orders Bank of America, N.A. to cease and desist from violating Sections
4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) of the Act, and Regulations 1.31,
23.201(a), 23.202(a)(1) and (b)(1), and 23.602(a); and BofA Securities Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated to cease and desist from
violating Section 4g of the Act and Regulations 1.31, 1.35, and 166.3;
3. Orders Respondents to pay, jointly and severally, a civil monetary penalty in the
amount of one hundred million US dollars ($100,000,000), plus post-judgment
interest within fourteen days of the date of entry of this Order; and
4. Orders Respondents and their successors and assigns to comply with the conditions
and undertakings consented to in the Offer and as set forth in Part VI of this Order;
and
G. Represent that they have engaged in a review of certain recordkeeping failures and begun
a program of remediation.
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Upon consideration, the Commission has determined to accept the Offer.
VI. ORDER
Accordingly, IT IS HEREBY ORDERED THAT:
A. Bank of America, N.A. and its successors and assigns shall cease and desist from violating
Sections 4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) of the Act, 7 U.S.C. §§ 6s(f)(1)(C),
6s(g)(1), (3), 6s(h)(1)(B), and Regulations 1.31, 23.201(a), 23.202(a)(1) and (b)(1), and
23.602(a), 17 C.F.R. §§ 1.31, 23.201(a), 23.202(a)(1), (b)(1), 23.602(a) (2021); and BofA
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and their
successors and assigns shall cease and desist from violating Section 4g of the Act, 7 U.S.C.
§ 6g, and Regulations 1.31, 1.35, and 166.3, 17 C.F.R. §§ 1.31, 1.35, 166.3 (2021).
B. Respondents shall pay, jointly and severally, a civil monetary penalty in the amount of
one hundred million US dollars ($100,000,000) (“CMP Obligation”), within fourteen
days of the date of the entry of this Order. If the CMP Obligation is not paid in full
within fourteen days of the date of entry of this Order, then post-judgment interest shall
accrue on the CMP Obligation beginning on the date of entry of this Order and shall be
determined by using the Treasury Bill rate prevailing on the date of entry of this Order
pursuant to 28 U.S.C. § 1961.
Respondents shall pay the CMP Obligation and any post-judgment interest by electronic
funds transfer, U.S. postal money order, certified check, bank cashier’s check, or bank
money order. If payment is to be made other than by electronic funds transfer, then the
payment shall be made payable to the Commodity Futures Trading Commission and sent
to the address below:
MMAC/ESC/AMK326
Commodity Futures Trading Commission
6500 S. MacArthur Blvd.
HQ Room 266
Oklahoma City, OK 73169
If payment is to be made by electronic funds transfer, Respondents shall contact Tonia
King or her successor at the above email address to receive payment instructions and
shall fully comply with those instructions. Respondents shall accompany payment of the
CMP Obligation with a cover letter that identifies the paying Respondent(s) and the name
and docket number of this proceeding. The paying Respondent(s) shall simultaneously
transmit copies of the cover letter and the form of payment to the Chief Financial Officer,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW,
Washington, D.C. 20581;
C. Respondents and their successors and assigns shall comply with the following conditions
and undertakings set forth in the Offer:
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1. BofA shall conduct:
a. A comprehensive review of BofA’s supervisory, compliance, and other
policies and procedures designed to ensure that BofA’s electronic
communications, including those found on personal electronic devices,
including without limitation, cellular phones (“Personal Devices”), are
preserved in accordance with the requirements of the Act, the Regulations,
and BofA’s policies and procedures.
b. A comprehensive review of training conducted by BofA to ensure personnel
are complying with the requirements regarding the preservation of electronic
communications, including those found on Personal Devices, in accordance
with the requirements of the Act and the Regulations, and BofA’s policies and
procedures, including by ensuring that BofA personnel certify in writing on a
quarterly basis that they are complying with preservation requirements.
c. An assessment of the surveillance program measures implemented by BofA to
ensure compliance, on an ongoing basis, with the requirements found in the
Act, the Regulations, and BofA’s policies and procedures to preserve
electronic communications, including those found on Personal Devices.
d. An assessment of the technological solutions that BofA has begun
implementing to meet the record retention requirements of the Act, the
Regulations, and BofA’s policies and procedures, including an assessment of
the likelihood that BofA personnel will use the technological solutions going
forward and a review of the measures employed by BofA to track employee
usage of new technological solutions.
e. An assessment of the measures used by BofA to prevent the use of unauthorized
communications methods for business communications by employees. This
assessment should include, but not be limited to, a review of BofA’s policies
and procedures to ascertain if they provide for any significant technology and/or
behavioral restrictions that help prevent the risk of the use of unapproved
communications methods on Personal Devices (e.g., trading floor restrictions).
f. A review of BofA’s electronic communications surveillance routines to ensure
that electronic communications through approved communications methods
found on Personal Devices are incorporated into BofA’s overall
communications surveillance program.
g. A comprehensive review of the framework adopted by BofA to address
instances of non-compliance by BofA employees with BofA’s policies and
procedures concerning the use of Personal Devices to communicate about
BofA business in the past. This review shall include a survey of how BofA
determined which employees failed to comply with BofA policies and
procedures, the corrective action carried out, an evaluation of who violated
15
policies and why, what penalties were imposed, and whether penalties were
handed out consistently across business lines and seniority levels.
2. Written Report of Findings:
a. Within forty-five (45) days after completion of the review set forth in sub-
paragraphs 1.a. through 1.g. above, BofA shall submit a detailed written report
of its findings to the Commission staff (the “Report”). The Report shall
include a description of the review performed, the names of the individuals
who performed the review, the conclusions reached, and a summary of the
plan for implementing the recommended changes in or improvements to
BofA’s policies and procedures.
b. BofA shall adopt all recommendations contained in the Report within one
hundred and thirty-five (135) days of the date of the Report.
c. The Report will likely include confidential financial, proprietary, competitive
business or commercial information. Public disclosure of the reports could
discourage cooperation, impede pending or potential government investigations
or undermine the objectives of the reporting requirement. For these reasons,
among others, the reports and the contents thereof are intended to remain and
shall remain non-public, except: (1) pursuant to court order; (2) as agreed to by
the parties in writing; (3) to the extent that the Commission determines in its
sole discretion that disclosure would be in furtherance of the Commission’s
discharge of its duties and responsibilities; or (4) is otherwise required by law.
3. One-Year Evaluation: BofA shall assess its program for the preservation, as required
under the Act, Regulations, and BofA’s policies and procedures, of electronic
communications, including those found on Personal Devices, commencing one year
after submitting the Report required by Paragraph 2.a. above. BofA shall require this
review to evaluate BofA’s progress in the areas described in Paragraph 1.a. through 1.g.
above. After this review, BofA shall submit a report (the “One Year Report”) to the
Commission staff and shall ensure that the One Year Report includes an updated
assessment of BofA’s policies and procedures with regard to the preservation of
electronic communications (including those found on Personal Devices), training,
surveillance programs, and technological solutions implemented in the prior year period.
4. Reporting Discipline Imposed: For two years following the entry of this Order, BofA
shall notify the Commission staff as follows upon the imposition of any discipline
imposed by BofA, including, but not limited to, written warnings, loss of any pay,
bonus, or incentive compensation, or the termination of employment, with respect to
any employee found to have violated BofA’s policies and procedures concerning the
preservation of electronic communications, including those found on Personal
Devices: (1) at least 48 hours before the filing of a Form 8-T; or (2) within ten (10)
days of the imposition of other discipline.
5.
Recordkeeping: BofA shall preserve, for a period
of
not less than six (6) years from
the end
of
the fiscal year last used, the first two (2) years in an easily accessible place,
any record
of
compliance with these undertakings.
6.
Public Statements: Respondents agree that neither they nor any
of
their successors
and assigns, agents or employees under their authority or control shall take any action
or make any public statement denying, directly or indirectly, any findings or
conclusions in this Order or creating, or tending to create, the impression that this
Order is without a factual basis; provided, however, that nothing in this provision
shall affect Respondents': (1) testimonial obligations; or (2) right to take legal
positions in other proceedings to which the Commission is not a party. Respondents
and their successors and assigns shall comply with this agreement, and shall
undertake all steps necessary to ensure that all
of
their agents and/or employees under
their authority or control understand and comply with this agreement.
7.
Cooperation, in General: Respondents shall cooperate fully and expeditiously with
the Commission, including the Commission's Division
of
Enforcement, in this action,
and in any current or future Commission investigation or action related thereto.
Respondents shall also cooperate in any investigation, civil litigation, or
administrative matter related to, or arising from, the subject matter
of
this action.
8.
Partial Satisfaction: Respondents understand and agree that any acceptance by the
Commission
of
any partial payment
of
Respondents' CMP Obligation shall not be
deemed a waiver
of
their obligation to make further payments pursuant to this Order, or a
waiver
of
the Commission's right to seek to compel payment
of
any remaining balance.
9.
Deadlines: For good cause shown, Division staff may extend any
of
the procedural
dates relating to the undertakings. Unless otherwise specified, deadlines for procedural
dates shall be counted in calendar days, except that
if
the last day falls on a weekend or
federal holiday, the next business day shall be considered to be the last day.
10
. Change
of
Address/Phone: Until such time as Respondents satisfy in full their CMP
Obligation as set forth in this Order, Respondents shall provide written notice to the
Commission by certified mail
of
any change to their telephone numbers and mailing
addresses within ten calendar days
of
the change.
The provisions
of
this Order shall be effective as
of
this date.
By the Commission.
~t~
Christopher
J.
Kirkpatrick
Secretary
of
the Commission
Commodity Futures Trading Commission
Dated: September 27, 2022
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