We kind of feel sorry Ken Lewis. He wants to renege on the Merill deal, but Hank Paulson tells him that if he does he’ll not only get fired, but may bring down the entire financial system with it. Of course, this means screwing over his shareholders, forcing them to bear the brunt of a terrible acquisition.
But not only did listening to Paulson nudge Lewis into screwing over Bank of America (BAC) shareholders, it’s also landing him in hot water with the SEC. Because, you know, you’re really supposed to let shareholders know about material information like “devastating losses” when it comes up. Lewis didn’t.
Bloomberg: “We have been actively reviewing the disclosure surrounding the merger between Bank of America and Merrill Lynch,” said agency spokesman John Nester. “The issues identified in New York Attorney General Andrew Cuomo’s letter are part of our review.”
Cuomo revealed in a letter yesterday to Congress and federal regulators that Lewis testified in December that then- Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors if the lender tried to back out of buying Merrill. Lewis said he was instructed by federal officials not to disclose Merrill’s losses, his desire to back out of the merger or the intervention of regulators, according to Cuomo.
Former SEC Chairman Harvey Pitt said he has “no doubt” the agency will investigate. Lewis was obligated to make full disclosure to shareholders even with the regulators’ pressure, Pitt said in a Bloomberg Television interview.
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