NY AG Cuomo Announces Fraud Charges Against Bank Of America For Merrill Lynch Merger (BAC)

Today, Andrew Cuomo announced fraud charges against Bank of America and top executives over the Merrill Lynch merger debacle.

The charges are civil, but Cuomo says there are pending criminal investigations.

Here’s the full release:


Suit Alleges Bank of America’s Top Management Hid Skyrocketing Losses at Merrill Lynch

Bank of America Management Manipulated Federal Government into Granting Massive Taxpayer Bailout

NEW YORK, NY (February 4, 2010) – Attorney General Andrew M. Cuomo,
joined by Special Inspector General for the Troubled Asset Relief
Program Neil Barofsky, today announced a lawsuit against Bank of
America, its former CEO Kenneth D. Lewis, and its former CFO Joseph L.
Price for duping shareholders and the federal government in order to
complete a merger with Merrill Lynch.  According to the lawsuit, Bank of
America’s management intentionally failed to disclose massive losses
at Merrill so that shareholders would vote to approve the merger.  Once
the deal was approved, Bank of America’s management manipulated the
federal government into saving the deal with billions in taxpayer funds
by falsely claiming that they would back out of the deal without bailout

“This merger is a classic example of how the actions of our
nation’s largest financial institutions led to the near-collapse of
our financial system,” said Attorney General Cuomo.  “Bank of
America, through its top management, engaged in a concerted effort to
deceive shareholders and American taxpayers at large.  This was an
arrogant scheme hatched by the bank’s top executives who believed they
could play by their own set of rules.  In the end, they committed an
enormous fraud and American taxpayers ended up paying billions for Bank
of America’s misdeeds.”

“The events surrounding the Bank of America/Merrill Lynch merger and
the United States Government’s investment in Bank of America through
the Troubled Asset Relief Program are an important part of the history
of the financial crisis,” said Special Inspector General Neil
Barofsky.  “Attorney General Cuomo and his staff, working hand in hand
with the law enforcement agents of SIGTARP, quickly identified the
important shareholder and taxpayer interests at stake in the disclosures
surrounding the merger and meticulously pieced together the evidence
that supports the historic charges filed today.  The close partnership
between the New York Attorney General’s Office and SIGTARP in this
case stands as a tremendous example of how well the public’s interests
can be served through effective State and Federal coordination, and
should send a powerful message that we will work tirelessly to hold
accountable those who have engaged in misconduct relating to the
response to this National crisis.”

Bank of America announced its plan to buy Merrill Lynch on September
15, 2008 and a shareholder vote to approve the transaction was scheduled
for December 5, 2008.  However, by the day of the shareholder vote,
Merrill had incurred disastrous actual losses of more than $16 billion.
Bank of America’s top management, including CEO Lewis and CFO Price,
knew about these massive losses and that additional losses were
forthcoming.  Despite the fact that this information would be important
to shareholders, the bank’s management chose not to disclose this
information so that shareholders would approve the merger.

After shareholders approved the deal, Lewis then misled federal
regulators by telling them that the bank could not complete the merger
without an extraordinary taxpayer bailout due to accelerated losses from
Merrill.  However, between the time that the shareholders had approved
the deal and the time that Lewis sought a taxpayer bailout, Merrill’s
actual losses had only increased by another $1.4 billion.  The bank also
threatened federal officials that they would terminate the merger
agreement based on a material adverse change in Merrill’s financial
condition, even though the bank knew that such an attempt would likely
be futile.

As a result of their efforts, Bank of America received more than $20
billion in taxpayer aid.  The bank’s management cannot explain why
they did not disclose Merrill’s massive losses to shareholders even
though the merger with Merrill would have threatened the bank’s very
existence if there had been no taxpayer bailout.

Furthermore, the lawsuit alleges the following:
●       Shortly before the shareholder vote, Price ignored a warning
from the bank’s Corporate Treasurer, Jeffrey Brown, who told Price
that, “I didn’t want to be talking [about Merrill’s losses]
               through a glass wall over a telephone.”
●       The bank’s management failed to tell shareholders that it was
allowing Merrill to pay $3.57 billion in bonuses.  The amount, criteria,
and timing of the bonus payments were omitted from the proxy.  The
bonuses were distributed in a manner that was completely inconsistent
with Merrill’s prior practice, and in the worst year in Merrill’s
●       The bank’s management did not tell the bank’s lawyers about
the full extent of Merrill’s losses before the shareholder vote.  For
example, the bank’s former General Counsel, Timothy Mayopoulos, was
intentionally mislead about the size and nature of Merrill’s losses.
After the shareholder vote, when Mayopoulos learned of the actual
losses, he attempted to confront Price but was summarily terminated.
●       In the course of the Attorney General’s investigation, Lewis
and other executives misled investigators about their conduct during and
after the shareholder vote.

In the process of acquiring Merrill Lynch, Bank of America’s
management intentionally misled its shareholders, its Board of
Directors, its lawyers, and United States taxpayers.  The lawsuit filed
today in New York State Supreme Court seeks monetary relief and
injunctions from Bank of America, Lewis, and Price.

The Attorney General thanked Special Inspector General for the Troubled
Asset Relief Program Neil Barofsky and his staff for their partnership
and hard work throughout the investigation.  The Attorney General also
thanked the Securities and Exchange Commission (“SEC”) and noted
that today the SEC is announcing a proposed corporate settlement with
Bank of America (See SEC Lit. Release #21407).  Cuomo stated, “I
support the SEC’s proposed settlement of its pending actions against
Bank of America.  The corporate governance provisions of that settlement
are important reforms for Bank of America and ensure that safeguards
against future violation of the law will be implemented immediately and
will not have to await the conclusion of the case we are filing

The investigation was conducted by Assistant Attorneys General Vicki
Andreadis, Thomas Teige Carroll, Pamela Lynam Mahon, Christopher
Mulvihill, and Ethan Zlotchew, under the supervision of Special Deputy
Attorney General for Investor Protection David A. Markowitz.

A copy of the lawsuit can be found at:

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