The timing of the firing of Timothy J. Mayopoulos, who was general counsel of Bank of America, has come under scrutiny by investigators looking into the lack of disclosure about losses at Merrill Lynch prior to the merger of the two banks.
The New York Times is reporting that Mayopoulos is at the centre of the inquiry into the decision to withhold information about the losses from Bank of America shareholders. Bank of America’s chief financial officer has said he relied on Mayopoulos’s advice on the December 3 when deciding not to disclose the losses.
In testimony to Mr. Cuomo’s staff, Joe L. Price, the chief financial officer, said he relied on Mr. Mayopoulos’s advice on Dec. 3, the day before the shareholder vote, for the bank’s decision not to disclose Merrill’s mounting losses. Mayopoulos has said that attorney-client privilege forbids him from revealing the exact advice he gave to Bank of America, although he’s said he relied on outside counsel in forming his opinion.
So what we don’t know is what Mayopoulos told Bank of America.
Six days earlier, he had met with Price to discuss the losses. In ordinary times, we’d say it wa likely to Mayoploulos told the bank that it did not need to disclose the losses, since it would be extremely rare for bank executives to overrule their attorney on the matter. It seems, however, that this is exactly what New York Attorney General Andrew Cuomo may suspect happened: That Mayopoulos told the bank they needed to disclose the losses and the bank’s executives refused.
“I’d like to know why he was dismissed,” Charles M. Elson, a Bank of America shareholder and a professor of corporate governance at the University of Delaware, tells Louise Story of the New York Times. “If he was terminated because of disagreements on disclosure on Merrill, that’s relevant. It goes right back to the effectiveness of management. You can always disregard a general counsel’s advice, but the question is, Why did you?”
It might strike many as surprising that an in-house lawyer would play such a critical role in such a huge decisions about what shareholders should learn about the business they are acquiriing. Disclosure rules, however, are largely dictated by technical legal questions about what is “material” to shareholder. Matters deemed important enough count as legally “material” and must be disclosed.
Bank of America has tried to play down the timing of the firing, which came on the day executives revealed the size of the losses at Merrill to its board. They’ve said that he was just redundant in the combined bank. A close ally of Bank of America CEO Ken Lewis, Brian Moynihan, was brought in to replace him.
Mayopoulos, believe it or not, is now the general counsel of Fannie Mae.