The office for New York Attorney General Andrew Cuomo announced today that it has filed fraud charges against Bank of America (NYSE: BAC), former CEO Kenneth Lewis and former CFO Joseph Price for actions that led to the Merrill Lynch merger, as well as the reception of taxpayer aid.
The suit claims that Bank of America failed to report massive losses at Merrill Lynch in order to get shareholders to approve the deal. At which point, the bank manipulated the government into providing billions in bailout aid by threatening to back out of the merger without government help.
“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,” said Attorney General Cuomo. “Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large. This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules. In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds.”
Cuomo’s suit also singles out Kenneth Lewis, who led the bank through the merger at the time, claiming he told regulators that they could not complete the merger without a taxpayer bailout due to the ever increasing losses from Merrill Lynch.
However, from the time shareholders had approved the merger to the time that Lewis sought a taxpayer bailout, Merrill’s losses had only increased by additional $1.4 billion.
Bank of America announced its plan to buy Merrill Lynch on September 15, 2008 and a shareholder vote to approve the transaction was scheduled for December 5, 2008.
However, by the day of the shareholder vote, Merrill had incurred disastrous actual losses of more than $16 billion. Furthermore, the bank did not fully disclose this information, which may have swayed shareholder’s decision.
