Legal News

?This Is Just a Fraud,? Says Cuomo About BofA/Merrill Deal

By Ashby Jones

The saga about which we spilled so many pixels in the last several months, the one we so lovingly call the BacMerSaga, heated up today with a double shot of news: some potentially very good for the beleaguered bank; some decidedly not-so-good.

For starters: New York Attorney General Andrew Cuomo filed civil securities fraud charges against former BofA CEO Kenneth Lewis and former Chief Financial Officer Joseph Price, alleging they decided not to disclose mounting losses at Merrill Lynch & Co. before getting shareholder approval to acquire the Wall Street firm. Click here for Cuomo’s complaint; here for the WSJ story.

To recap: Shareholders approved BofA’s purchase of Merrill on Dec. 5, 2008, not knowing that Merrill had accumulated more than $16 billion in “actual losses” for the fourth quarter of 2008, according to the attorney general. The bank didn’t say anything about the mounting losses until the U.S. in January 2009 provided the bank with an additional $20 billion to absorb Merrill.

“We believe bank management understated the Merrill Lynch losses to shareholders to get shareholders to approve the deal then overstated their ability to terminate the agreement to get $20 billion from federal government,” Cuomo said on a conference call earlier Thursday.

After the shareholder vote, Bank of America executives went to U.S. officials and said they might back away from the purchase because the losses were greater than they expected. But Mr. Cuomo said Wednesday that “actual losses” were only $1.4 billion greater than at the time of the vote.

“That is just a fraud,” he said.

The bank, in a statement on Wednesday, called the charges “regrettable” and disappointing and said it would vigorously defend against them. Debevoise’s Mary Jo White, Lewis’s attorney, said in a statement that Cuomo’s decision to sue was “a badly misguided decision without support in the facts or the law.” Lawyers for Price said the attorney general’s allegations were “flatly contrary to the evidence.”

The second piece of news on this front: BofA and the SEC reached a $150 million settlement on allegations of misleading investors during the Merrill deal. The settlement requires a judge’s approval. Click here for the SEC’s brief supporting the approval of the deal; here for the settlement itself.

Now, whether the settlement will get the approval of the judge on the case, Manhattan federal judge Jed Rakoff, is anyone’s guess at this point. Last year, Rakoff rather famously slammed a settlement offer that required the bank to pay $33 million in penalties. He said it was “unjust” and questioned why no individuals were held accountable. He set a trial date for March 1.

In addition to the fine, Bank of America agreed to install numerous corporate-governance measures. The deal would also require the bank to have a “super-independence” standard for all members of the bank’s compensation committee, under which they would receive no other pay from the bank. The bank would also be required to have a “super-independent” compensation consultant for the committee.

Full post as published by Law Blog - WSJ.com on February 04, 2010 (boomark / email).