Will Andrew Cuomo File Charges Against Bank of America Executives?

According to multiple reports, the New York Attorney General's office is preparing to file civil charges against "several" high-ranking Bank of America executives.

These charges relate to the Bank of America / Merrill Lynch deal that was hurriedly completed at the height of the global economic crisis in 2008. This deal was seen as being instrumental in staving off complete economic paralysis across the globe, and has since become the focus of much scrutiny.

Numerous problems arose from this deal:

1. Bank of America claimed in a letter to shareholders that bonuses would not be paid out to Merrill Lynch employees "without its consent", yet BofA had actually already authorized Merrill Lynch to pay its employees "up to $5.8 billion dollars" in bonuses.

In the end, Merrill Lynch ended up paying its employees a total of $3.6 billion dollars in 2008, despite the fact that the company had lost $27.6 billion dollars on the year.

The SEC alleged that Bank of America didn't inform its shareholders of this pre-approved bonus deal before the final vote. Merrill Lynch didn't inform its shareholders either.

BAC shareholders approved the deal on December 5th, 2008. The bonuses were paid out on December 31st, and the deal officially closed one day later.

How shady is that?

Bank of America and the SEC agreed on a $33 million dollar fine due to BAC misleading its shareholders, but a federal judge rejected this settlement earlier today.

The judge said that Bank of America "materially lied" to its shareholders, and that the settlement "does not comport with the most elementary notions of justice and morality."

The judge took particular issue with the fact that BofA shareholders, who had already suffered enough after being misled about the bonuses, would now be required to pay the $33 million dollar penalty to the SEC.

It's not like top level executives at Bank of America were planning on paying the fine out of their own pockets..

2. Allegations surfaced earlier this year that Henry Paulson (former Treasury Secretary) and Ben Bernanke (chairman of the Fed) had threatened Ken Lewis, the CEO of BofA, with his job if he didn't follow through with the purchase of Merrill Lynch.

A few months after the merger details had been negotiated, the CFO of Bank of America had reportedly alerted Lewis as to the "quickly crumbling" financial condition of Merrill Lynch.

Lewis was alarmed after hearing this, and reportedly asked his lawyers if Bank of America would be able to walk away from the deal.

A short while later, Lewis advised Paulson that he was considering walking away from the deal due to the fact that a MAC (Material Adverse Event) had occurred.

The major players in putting the original deal together met in Washington. Paulson and Bernanke reportedly asked Lewis not to walk away from the deal until there was "further consultation", and Lewis reiterated his insistence on walking away.

Paulson then apparently claimed that the collapse of the deal would cause "systemic risk" to the economy, and that the government "could or would" remove the board and management of BAC if they chose to walk away from the deal.

Lewis apparently then decided to back down and continue with the deal, later admitting that the decision to continue with the merger "hurt any shareholder" with a short-term holding in the company.

Lewis testified that Paulson and Bernanke both asked him not to disclose the rapidly mounting losses at Merrill Lynch. In addition, they apparently also asked him not to disclose the fact that he had been considering walking away from the deal.

Andrew Cuomo later revealed that the SEC was "kept in the dark" throughout this entire process.

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It should be interesting to see the extent of Cuomo's charges, if and when they are made public.

One thing is for certain - the shareholders of Bank of America were royally screwed over multiple times during the closing of the Merrill Lynch deal. Somebody should pay for that, and it certainly shouldn't be BAC shareholders (again).

Source: AP - Cuomo preparing charges against BofA


Filed under: The Economic Meltdown