New York’s Attorney General Andrew Cuomo filed civil securities fraud charges Thursday against Bank of America*, its former CEO Ken Lewis, and former CFO Joe Price.
The suit alleges that the bank and the two executives first misled shareholders and then the U.S. government about details relating to BofA’s acquisition of Merrill Lynch in 2008. According to the 90-page complaint, the bank’s management allegedly hid massive Merrill Lynch losses in the fourth quarter of 2008 — more than $16 billion — from BofA shareholders who were voting on the merger. Once the deal was approved by shareholders in December 2008, the complaint continues, BofA then approached federal officials and threatened to back away from a deal as a result of the losses unless the bank received a second bailout. Shortly after, the bank received an additional $20 billion from the U.S. government.
In a statement announcing the suit, Cuomo said:
“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. Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large.
Bank of America called the suit “regrettable” and said it would vigorously defend itself against the accusations. Lewis’s attorney issued a statement calling the allegations “badly misguided,” adding that “there is not a shred of objective evidence to support the allegations by the Attorney General.” An attorney for Price said his client denied the charges against him, which he called “utterly false.”
The Cuomo suit comes on the same day Bank of America settled with the Securities and Exchange Commission on similar charges stemming from two SEC suits: that the bank misled investors before voting on the Merrill deal by failing to disclose both large Merrill losses and bonuses Merrill intended to pay employees despite those losses. In settling the suits, BofA agreed to pay $150 million in fines and take steps to strengthen its corporate governance. The deal is subject to approval by a federal judge.
Price remains with Bank of America as head of consumer banking. Lewis retired in December after 40 years with the bank.
In an email to the New York Times, a spokesman for Bank of America said:
“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. The S.E.C. had access to the same evidence as the N.Y.A.G. and concluded that there was no basis to enter either a charge of fraud or to charge individuals.”
*For the record, Bank of America is a NewsHour underwriter.