New York Attorney General Andrew Cuomo filed a lawsuit accusing former Bank of America (BAC) CEO Kenneth Lewis of misleading investors about Merrill Lynch's mounting losses before Bank of America acquired the firm in late 2008. The bank and its former chief financial officer, Joseph L. Price, were also charged.Cuomo and Special Inspector General for the Troubled Asset Relief Program Neil Barofsky filed the suit against Bank of America, Lewis and Price, alleging that they had duped shareholders into approving the Merrill Lynch merger and manipulated the federal government in order to receive massive taxpayer bailouts.
"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," Cuomo says in a press release. "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."
Lewis has claimed that the then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke pressured him into completing the Merrill deal. Both men have denied coercing Lewis. In April, The Wall Street Journal reviewed a transcript of testimony he gave Cuomo's staff and found: "Mr. Lewis didn't say he was explicitly instructed to keep silent about the losses piling up at Merrill. But his testimony indicates that he believed the government wanted him to remain silent."
Bank of America spokesman Robert Stickler told the Associated Press that the charges were totally without merit. He said the Securities and Exchange Commission saw the same evidence and did not find the bank or any individuals guilty of fraud. In fact, earlier today Bank of America agreed to pay $150 million in order to settle the SEC's charges that the firm failed to properly disclose Merrill's financial losses and employee bonuses. The payout is contingent upon court approval.
Calls to Bank of America seeking comment were not returned by press time.
Clearly, Cuomo, who is rumored to be interested in running for governor of New York, believes that Bank of America's actions deserve additional scrutiny, especially considering the $45 billion dollars the company received in assistance from the federal government. That money was repaid in December.
Over the course of his 40-year career at Bank of America, Lewis was lauded by former Chairman Walter E. Massey for being "a key architect in building a truly global financial franchise." Yet, in his final years, there was also enormous pressure for the bank to oust him. Before he announced his retirement last fall, Lewis had already been stripped of his chairman's job amid shareholder outrage over the Merrill acquisition.
Since retiring, Lewis has probably been busy counting the $125 million he received in severance, writing a self-justifying memoir and doing the other things that very rich guys love to do. Now, he is going to need to add hiring a legal defense team to his to-do list, if he has not done so already.
Learn the most important step in structuring an investment portfolio.View Course »