U.S. securities regulators are looking at what Bank of America disclosed to shareholders as it was acquiring Merrill Lynch, including the investment bank's mounting fourth-quarter losses that eventually topped $15 billion.

The Securities and Exchange Commission is examining all aspects of Bank of America's proxy statement, the SEC's chief enforcer Robert Khuzami told Congress on Friday.

The SEC filed a lawsuit in August against the bank, accusing it of making misleading statements to shareholders in its proxy documents about bonuses paid to Merrill employees

However, a $33 million settlement of that lawsuit between the SEC and Bank of America was rejected by a federal judge, who said the SEC let the bank off too easily by not requiring the bank to reveal names of executives and lawyers who vetted the bonuses and who decided not to disclose them. The case is scheduled to go trial early next year.

At a fifth House Oversight Committee hearing to examine the government's role in the deal, Khuzami said the SEC will vigorously pursue allegations that the bank misled investors over bonuses paid to Merrill employees.

Khuzami said the SEC also is determining whether to seek additional charges against the bank.

For months the House committee has been trying to pinpoint when Bank of America knew Merrill was on its way to a $15.8 billion loss, and whether it was prepared to halt the acquisition in late 2008 or seek government help to finish it.

Democrat Dennis Kucinich said the SEC should examine if the bank committed securities fraud by failing to disclose growing losses at Merrill before shareholders voted to approve the deal. That should be central to the SEC's enforcement action against Bank of America, Kucinich said.

The SEC and other law enforcement agencies are under pressure to bring wrongdoers to justice after the worst financial crisis in decades wiped out trillions of dollars in investments and exposed gaps in banking regulation.

Representative Jackie Speier, another Democrat, told Khuzami she was deeply troubled with the $33 million deal. A company that lies on a proxy statement should have a penalty that is so strong that you won't ever do it again, she said.

BAIR: FDIC WAS URGED TO HELP BOFA

At the same hearing, the Federal Deposit Insurance Corp said it resisted pressure last year from the Bush administration to extend assistance to the bank to complete the Merrill deal, but eventually was convinced of the need.

The FDIC's board ultimately was persuaded that BofA's condition presented a systemic risk, FDIC Chairman Sheila Bair said.

Bair said the FDIC was told by the Federal Reserve and Treasury mid-December 2008 that Bank of America was uneasy about completing the Merrill deal. The FDIC questioned whether further aid was really needed when former Treasury Secretary Henry Paulson indicated he hoped the FDIC would provide asset guarantees like it gave Citigroup, she said.

Over the following days, she said, the FDIC sought details about Bank of America's exposures, particularly how much risk was in its insured depository business. The FDIC board ultimately agreed mid January that Bank of America's condition posed a systemic risk that a ring fence transaction with asset guarantees from the FDIC would mitigate, Bair said.

The government wanted to wall off, or ring fence, the risky assets in the merged Bank of America-Merrill company so that insured deposits would not be affected.

An asset guarantee deal and a capital infusion were announced on January 16, but the ring fence transaction was never finalized and was ultimately terminated.

The House oversight committee has already grilled Federal Reserve Chairman Ben Bernanke, Paulson, two Bank of America directors and its retail banking head Brian Moynihan for how they handled the merger. Moynihan, the bank's general counsel when the deal closed, is one of the leading contenders to replace outgoing CEO Ken Lewis.

(Reporting by Rachelle Younglai, Kim Dixon and Karey Wutkowski; editing by Carol Bishopric)

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