N.Y. Attorney General Cuomo charges Bank of America with fraud
Friday, February 5, 2010
New York Attorney General Andrew M. Cuomo filed fraud charges Thursday against Bank of America and two of its former top executives, alleging that they lied not only to investors but also to government officials who were orchestrating a massive bailout of the bank in the final months of 2008.
The company and two former executives -- chief executive Kenneth D. Lewis and Chief Financial Officer Joseph Price -- were accused of misleading federal officials about the size of losses at Merrill Lynch, the troubled investment bank that Bank of America was in the process of buying. The lawsuit alleges that the deception was part of a successful effort to trick the officials into providing an additional infusion of bailout money.
Cuomo also charged the bank and the former executives with lying to investors about mounting financial losses at Merrill Lynch and concealing billions of dollars in bonuses paid to employees. The bank and executives denied the charges.
Bank of America separately agreed to pay $150 million to settle two earlier lawsuits brought by the Securities and Exchange Commission charging that the company lied to shareholders. The SEC's legal action, which was less aggressive than Cuomo's, did not include fraud charges and cleared individual executives of wrongdoing.
Cuomo's lawsuit raises the prospect that senior federal officials, both former and current, could be called to provide courtroom testimony for the first time about their role in rescuing the financial system. The lawsuit names former Treasury secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and other federal officials as participants in discussions about the merger between Bank of America and Merrill Lynch.
These officials have already been called before a congressional committee looking into the deal. Some lawmakers have said the officials, who were worried that the U.S. economy would be in peril if the deal fell through, conspired with company executives to hide information that Bank of America was required to disclose under federal securities laws.
The officials have said they did nothing wrong.
The actions taken Thursday represent the culmination of long-running investigations by Cuomo, the Securities and Exchange Commission, and the Treasury Department's special inspector general for the financial bailout, Neil Barofsky.
"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," Cuomo said. "They committed an enormous fraud, and American taxpayers ended up paying billions for Bank of America's misdeeds."
Bank of America first settled SEC allegations by agreeing to pay $33 million last summer. But a federal judge rejected the settlement, saying it left too many questions unanswered, punished the very shareholders who were injured and let top executives off the hook.
The SEC announced Thursday that the bank has now agreed to pay $150 million to settle the charges and make a host of changes in how the company is run. The agency said it would come up with a plan to ensure that the money goes to injured investors. A judge must still sign off on the agreement.
The new fraud charges, however, may complicate matters. The SEC had said in previous court filings that it could find no evidence that executives at Bank of America did anything illegal. Cuomo's suit says the opposite.