Ken Lewis, the recently retired chief executive of Bank of America Merrill Lynch, and Joe Price, the bank's former chief financial officer, have been charged with fraud related to TARP (troubled asset relief programme) bail-out funds.
After more than a year of investigation, the office of Andrew Cuomo, New York attorney-general, has determined that Mr Price misled BofA's general counsel as to the severity of Merrill Lynch's losses in Q4 2008, and on 4 February filed civil charges against both Mr Price and Mr Lewis.
The lawsuit alleges that Mr Price misrepresented losses in order to get general counsel to agree with the bank’s stance that Merrill’s losses did not need to be disclosed to shareholders prior to a December 5 vote on the transaction.
Mr Cuomo also alleges that BofA subsequently overstated its ability to break off the deal as leverage to get $20bn from the government's TARP fund.
According to reports, a week after BofA shareholders approved the Merrill acquisition, Mr Lewis told federal regulators that Merrill’s losses had grown so quickly that BofA was planning to invoke the “material adverse change” clause to extricate itself from the transaction.
Mr Cuomo’s office, a Congressional committee and the Securities and Exchange Commission have have spent the past year investigating the events prior to BofA’s acquisition of Merrill Lynch, and the SEC announced a $150m settlement with BofA on 4 February 2010 regarding shareholder disclosure. Mr Cuomo’s civil suit is an attempt to affix blame to the bank’s most senior managers.
Last September, in what most people see as an attempt to take pressure off the bank, Mr Lewis announced his intention to retire as CEO at the end of 2009. Without an obvious successor, this was followed by a period of uncertainty and an extensive executive search. Mr Lewis was finally replaced by Brian Moynihan, who has served in various capacities at BofA, including general counsel. Mr Moynihan, who took over in January, had named Mr Price to head up BofA’s consumer banking operations.
BofA issued the following statement: “We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit. The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations.”
For more on Bank of America Merrill Lynch go to The taming of Merrill
