New York Attorney General Andrew Cuomo is stepping up the investigation into Merrill’s $4 billion bailout-for-bonuses scandal. He is also reportedly considering demanding that the bonuses be paid back:
Susanne Craig, WSJ: New York Attorney General Andrew Cuomo is expanding the scope of his investigation into bonuses paid by Merrill Lynch, with the inquiry now likely to include whether directors and shareholders were misled about giant losses at the Wall Street firm, a person familiar with the situation said.
Mr. Cuomo plans to press John Thain, the former Merrill chairman and chief executive who was forced to resign last week from Bank of America Corp., on what he told Merrill directors about ballooning losses in mid-December, this person said.
In addition, Mr. Cuomo wants to know why the Charlotte, N.C., bank didn’t publicly disclose that Merrill’s condition was deteriorating. BofA Chairman and CEO Kenneth Lewis is likely to face questions from Mr. Cuomo about bonus payouts by Merrill, including what he told directors about them, according to this person…
Bank of America is in hot water, too:
“We plan to look at the fiduciary duty of these two men and others at various points in this saga,” the person familiar with the investigation said Wednesday. “Looking at Bank of America, if they did a bad deal and didn’t tell anyone, it not only hurt shareholders, it hurt taxpayers because of the government funding that has been extended to the bank.”
The investigation is at an early stage, but Mr. Cuomo’s office is examining potential remedies such as trying to recover bonuses already paid, fines or alleging securities-law violations, the person familiar with the investigation said.
In a statement, Mr. Cuomo said Bank of America faces a “$4 billion question” about “why it failed to stop Merrill Lynch from issuing year-end bonuses as it was taking over the company.”
That last part goes straight to Bank of America’s wimpy assertions that it couldn’t do anything about the bonuses. If it lacked the legal power to stop them, it certainly could have complained publicly about them.
Meanwhile, it seems highly unlikely that Cuomo could successfully claw back $4 billion of bonuses. Every employee who received a check (50,000?) would have to write the firm a check. Most of the employees have presumably already spent some or all of the money (or soon will, now that they’re reading about potential clawbacks). None of the employees would have had any idea that there was anything scandalous about the payouts. So this remedy, at least, seems unlikely.