Link: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7015681.ece

February 5, 2010

Bank of America accused of 'enormous fraud'

The New York Attorney General is suing Bank of America (BoA) and two of its top executives for an “enormous fraud” on taxpayers and shareholders over the bank's 2008 acquisition of Merrill Lynch.

Attorney General Andrew Cuomo’s civil suit alleges that Kenneth Lewis, BoA’s former chief executive, and Joe Price, currently head of the bank’s consumer arm, hid a $16.2 billion pre-tax loss at Merrill from shareholders, then lied to the Federal Reserve and the Treasury to get a $20 billion bailout.

“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,” Mr Cuomo said.

The Attorney General brought his suit in partnership with Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program (Tarp), who is charged with protecting America’s $700 billion bailout fund. Mr Barofsky said that the lawsuit would send a “powerful message” to anyone attempting to default the Tarp.

Among other extraordinary allegations, the suit intimates that Mr Price, who was BoA’s chief financial officer in late 2008, arranged the sacking of Timothy Mayopolous, the bank’s general counsel, to prevent him from revealing that Mr Price was hiding Merrill’s huge loss.

Mr Price is also alleged to have lied to BoA’s board about the loss and, with Mr Lewis, installed Brian Moynihan, a stooge general counsel, to push the $50 billion all-paper deal through.

Mr Moynihan, who became BoA's chief executive last month, had not practised law in 15 years and did not have current bar licence when he took the general counsel job, which he held for just six weeks. Mr Moynihan is not accused of any wrong doing.

Mary Jo White, Mr Lewis's attorney, said: “There is not a shred of objective evidence to support the allegations,” Ms White said. Mr Lewis retired last month.

Bill Jeffress, Mr Price’s attorney, called the claims “utterly false”.

Mr Lewis and his bank were lauded as national heroes in September 2008 when BoA offered $50 billion for Merrill, which was close to bankruptcy after taking billions of dollars in losses on risky assets. BoA’s shareholders approved the deal on December 5 but on December16 Mr Lewis told the Fed and the Treasury that mounting losses at Merrill would force BoA to back out of the deal unless it received Government assistance to cover the red ink. The Tarp loaned BoA $20 billion to complete the deal, which went through in January 2009.

BoA shareholders were furious that month when BoA revealed that Merrill had made a $15.8 billion net loss in the fourth quarter but paid $3.7 billion in 2008 bonuses. According to Mr Cuomo, BoA already knew that Merrill had run up a $16.2 billion pre-tax loss at the time of the shareholder vote, but decided not to tell investors.

A BoA spokesman described Mr Cuomo's claims as "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," he said.

Shares in the bank slumped 4.9 per cent to $14.77 each.

The Attorney General also claimed that BoA told the Government that it had discovered the huge loss in mid-December, when in fact the loss had grown by only $1.4 billion between the time of the vote and BoA’s meeting with Fed and Treasury officials on December 16.

Separately, the Securities and Exchange Commission (SEC) said yesterday that BoA had agreed to pay a $150 million civil penalty, which will be distributed to shareholders, over its failure to tell investors of Merrill’s losses or bonuses. The SEC had previously agreed a $33 million fine with BoA over the issue but Judge Jed Rakoff of the US District Court in Manhattan refused to approve the settlement, which he said unfairly penalised shareholders who had already lost out on the takeover.

Judge Rakoff will be asked to approve the new settlement.

Comment:

This story and the final outcome, needs to be widely publicized.

Settle for $150 million? Is this a joke, or what? (If they delay long enough, they could settle for, say 100,000 ounces of gold in an ETF).

Good Luck to all!