Andrew Cuomo has announced a lawsuit against Bank of America’s former CEO Kenneth D. Lewis, its former CFO Joseph L. Price, and the company itself, for “duping shareholders and the federal government in order to complete a merger with Merrill Lynch.” Uh oh!
According to the lawsuit, the AG alleges that Bank of America intentionally didn’t disclose massive losses at Merrill Lynch so that its shareholders would approve the merger. Once it was approved, the lawsuit alleges that the management tricked the government into “saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds.”
“This merger is a classic example of how the actions of our nation’s largest financial institutions led to the near-collapse of our financial system,” said Attorney General Cuomo. “Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large. 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.”
The lawsuit also alleges that Bank of America did not disclose that it was going to allow Merrill to pay billions in bonuses — and to pay those bonus in a way that was “inconsistent” with how they’d done it in the past.
The amount, criteria, and timing of the bonus payments were omitted from the proxy. The bonuses were distributed in a manner that was completely inconsistent with Merrill’s prior practice, and in the worst year in Merrill’s history.
And then there’s this about Bank of America’s lawyer, who tried to confront the management about the losses at Merrill.
The bank’s management did not tell the bank’s lawyers about the full extent of Merrill’s losses before the shareholder vote. For example, the bank’s former General Counsel, Timothy Mayopoulos, was intentionally mislead about the size and nature of Merrill’s losses. After the shareholder vote, when Mayopoulos learned of the actual losses, he attempted to confront Price but was summarily terminated.
If you’d like to read the lawsuit, here’s a PDF of it. Gather around the campire, here’s how it starts:
In September 2008, Bank of America agreed to merge with Merrill Lynch. This merger has, in many ways, become a classic example of how the modus operandi of our nation’s largest financial institutions led to the near collapse of our financial system. In order to complete its deal, Bank of America’s management misled its shareholders by not disclosing massive lossesthat were mounting at Merrill Lynch so that the shareholders would vote to approve the deal.
Once the deal was approved, Bank of America’s management manipulated the federal
government into saving the deal with billions in taxpayer funds by falsely claiming that they intended to back out of the deal through a clause in the Merger Agreement. Ultimately, this was an enormous fraud on taxpayers who ended up paying billions for Bank of America’s misdeeds.
Throughout this episode, the conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them. Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.