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Bank of America: a track record of betrayal continues

To us in Indian country, it all sounds so familiar. Here is Bank of America, back in the headlines for a proposed merger with the FleetBoston banks that would make Bank of America the second-largest U.S. bank, with close to a trillion dollars in assets. More importantly, the merged entity's banks would network the nation after this acquisition in New England and the Northeast.

It sounds familiar because Bank of America has already proved to Indian country that in the process of pursuing its business ambitions, it knows how to abuse minority interests while pretending to serve them.

That was the course it followed some few years ago, when then Nations Bank and Bank of America were merging to become the current Bank of America - that would be the one now accused of violating its "fiduciary duty to long-term investors" by New York's attorney general, according to the online mutual fund industry newsletter

At the time of the merger, the new Bank of America needed the cooperation of Indian country. So in a long and complicated process of dissimulation, the merging entities promised to engage Indian country with a program to prepare the ground for greater banking services over 10 years. Shortly after approval of the merger came through, the new Bank of America dropped the idea. And that ended Bank of America's national initiative in Indian country and rural America.

All that would be old news - except that corporate fraud in America never seems to be old news. Certainly not to judge from the recent cavalcade of corporate criminality stretching from Enron to Tyco, from WorldCom to Global Crossings to mutual fund trading and beyond.

The connection is this: corporations that knowingly abuse minorities are poorly and unethically governed or they wouldn't choose that path. And if their internal controls are poor enough that employees think they can abuse minorities with no one the wiser, you can bet they'll be the first to defraud small investors - minority investors in the other sense of the word - behind closed doors.

"Late trading" is the investor abuse Bank of America has perpetrated, along with mutual fund companies and one other bank. A "late trading" and "market timing" investigation has grown from dubious-looking mutual fund capital flows to a $40 million settlement and criminal prosecutions, with more expected.

Bank of America has not been officially charged with wrongdoing in the case; in technical parlance, it has merely been named in a criminal complaint. Of course without admitting any guilt, Bank of America has established a restitution fund for small investors who were harmed in the outlawed "late trading" process its executives zealously approved. Even more damningly, it has issued all the usual mealy-mouthed and untrustworthy testimonials to its own high goals.

In essence, according to the charges against other parties, Bank of America executives (most of them fired since) agreed to act in complicity with a large mutual fund company that wanted to trade mutual funds after the market closed each day - that is why it goes by the name of late trading. This is illegal because it enables favored traders to gauge future prices on the next morning's foreign trading floors against the domestic close-of-business price - that is, in light of after-hours events that might move the foreign markets, which open earlier in distant time zones. The intimate knowledge of the mutual fund trading fraternity makes it possible to anticipate such differences and profit nicely from them.

The profits gained through such late trading dilute the profits of smaller mutual fund investors, costing them billions of dollars a year in the $6.9 trillion mutual fund industry, by one estimate. Late traders are favored because, unlike small investors, they move huge sums.

Bank of America executives not only permitted late trading, but actually congratulated the employee who agreed to it. This occurred during a Bank of America push to raise profit margins.

Now, taken altogether that has got to tell us something. It tells us that a corporate culture exists at Bank of America that ordered up profit at all costs. It strongly suggests that internal controls in mutual fund trading were either barely there, or there and corrupt. And Bank of America certainly isn't the only one, as the ongoing investigation has revealed.

For small investors, help is on the way. The organization GovernanceMetrics International is compiling a rating system that would put a dollar figure on corporate governance. By considering almost 600 indicators, GovernanceMetrics is demonstrating that good corporate governance and long-term profit go together. Statistics may pressure poorly governed corporations to improve, the New York Times reports.

For Indian country, the small comfort in all of this is again to have played the miner's canary, warning others of the contempt for differences - differences in race, differences in wealth - that undergird corporate greed and power in modern America.

The federal regulatory bodies that must authorize bank mergers should take a lesson from Bank of America's track record of betrayal. The Bank of America and FleetBoston merger should not be approved. Bank of America should then make an honest, concerted effort to revive its Indian country and rural America initiative, not as a phony promise this time but as a long-term accomplishment. Perhaps by that time, it can also convince GovernanceMetrics it deserves a decent score for corporate governance.

Rebecca Adamson is the president of First Nations Development Institute and a columnist for Indian Country Today.