Banc of America Investment Services Inc, a unit of Bank of America Corp, has settled charges it failed to disclose it favored affiliated mutual funds, the U.S. Securities and Exchange Commission said on Thursday. The SEC said Banc of America Investment Services Inc (BAISI), a broker-dealer, and Columbia Management Advisors have agreed to pay $9.8 million to settle the charges.

The agency said BAISI from July 2002 through December 2004 did not tell clients that, in selecting investments for discretionary mutual fund wrap fee accounts, it favored two mutual funds affiliated with BAISI.

Columbia, a successor to Banc of America Capital Management, was charged with aiding and abetting and causing some of BAISI's violations, the SEC said. An attorney for BAISI declined to comment. A spokeswoman for the company could not immediately be reached for comment.

"BAISI's selection of mutual funds for wrap fee clients was compromised when it favored its own proprietary funds over non- affiliated funds," said SEC enforcement director Linda Thomsen in a statement. "By using a method to select funds that was at odds with information it provided to clients, BAISI violated its duty of loyalty to its clients."

The SEC said the $9.8 million in disgorgement and penalties will be put into a fund to benefit BAISI's affected clients.