Academic

Making BofA buy Merrill

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Henry Paulson told Ken Lewis in December that he had to go forward with the Merrill acquisition, and that he should keep quiet about the substantial losses.  That's pretty tough, partly because, Randall Bodner believes, "'the government made me do it' is not a defense."  And it may anger the SEC.

Some observations:

• I'm not sure this threat was a serious one.  Or what?  Treasury nationalizes BofA and fires Lewis?  C'mon, in December?  Market cataclysm.
• Is "the government made me do it?" a defense?  I don't know, but I'd look to see what has happened to plaintiff suits in the wake of a forced sale of a failed bank to a solvent one.  They must exist, and the acquisition - one that the solvent one must not have contemplated until very shortly before the sale - surely hasn't looked good every time.
• Could the government have replaced Lewis as a matter of law?  This is something that Congress is thinking about (they're considering upscaling the government's conservatorship powers), but I think that those existing conservatorship powers give the government a relatively strong legal hand, one it used with Washington Mutual and a host of other institutions.
• There's nothing about conservatorships in the TARP, though, and BofA got TARP funds. 

Full post as published by Conglomerate on April 24, 2009 (boomark / email).