Legal News

With Cuomo Letter, BofA, Merrill Situation Heats Up

By Ashby Jones

It started out so harmlessly: two parties — the SEC and Bank of America — asking a federal judge to sign off on a $33 million settlement concerning allegations that BofA misled investors last year about $3.6 billion in bonuses to brass at Merrill Lynch.

But now, the situation is inching its way toward the criminal realm.

New York state’s attorney general, Andrew Cuomo, moved closer Tuesday to filing securities-fraud charges against BofA executives, citing at least four “failures” to tell shareholders material information related to the bank’s takeover of Merrill. Click here for the WSJ story; here for the letter sent by Cuomo’s office to Cleary Gottlieb’s Lewis Liman on Tuesday. Liman is representing BofA.

The warning came in a Tuesday letter to the bank from David Markowitz, the chief of Cuomo’s investor-protection bureau, who demanded more information about conversations deemed privileged by Bank of America officials. As the AmLaw Daily’s Zach Lowe puts it: “Cuomo’s message to Lewis Liman of Cleary is simple: Drop the privilege claims.”

Cuomo’s office is pursuing its investigation of the Merrill deal under the Martin Act, a New York state law that broadly defined securities fraud and can be used to pursue civil and criminal penalties.

BofA has said repeatedly that it followed the advice of its lawyers in making decisions on what to disclose and when. Statements about Merrill “complied with the law and all applicable rules and regulations,” bank spokesman Robert Stickler said Tuesday.

Relatedly, the NYT on Wednesday shines a light on former BofA general counsel Timothy Mayopolous, whose dismissal in the midst of the BofA/Merrill merger is raising questions.

His dismissal came six days after he spoke with the bank's chief financial officer about mounting losses at Merrill Lynch, which were not disclosed to shareholders before the deal closed.

"I'd like to know why he was dismissed," Charles M. Elson, a Bank of America shareholder and a professor of corporate governance at the University of Delaware, told the Times. "If he was terminated because of disagreements on disclosure on Merrill, that's relevant. It goes right back to the effectiveness of management. You can always disregard a general counsel's advice, but the question is, Why did you?"

Full post as published by Law Blog - WSJ.com on September 09, 2009 (boomark / email).