Bank Of America's Retort To Andrew Cuomo

Tyler Durden's picture

After reading the letter below, one would think that Mr. Lewis Liman, Eqs. of Cleary Gottlieb is either i) pathologically dead set on making the NY AG's "list" at all costs or ii) truly and utterly convinced in the innocence of his client.

While the whole thing needs to be read to be appreciated, the following are the highlights that Liman believes are "spurious and false allegations" in Cuomo's letter which Zero Hedge posted previously.

The letter devotes an entire page to the timing of Merrill Lynch's bonus payments and questions involving the role of counsel with respect to those payments without quoting a single question your Office asked of any witness regarding communications with counsel or the role of counsel or any information it sought to elicit on those subjects. Apparently, your Office's interest in this subject arose only after, and as a result of, the proceedings before Judge Rakoff. As the SEC stated in open court, however, it "cannot infer any misconduct" from the timing of the bonus payments. Bank of America's position with respect to the Proxy Statement has been and continues to be that it did not contain any false or misleading statements.

Uh, Lewis, if your clients are innocent of any wrongdoing, feel free to litigate the SEC. Although, why do that, when you can settle, and pay a fee (which, while not reeally having any impact on BAC shareholders, amount to about 10 cents out of your own pocket... and every other American's).

The letter refers to a goodwill charge of $2 billion taken by Merrill Lynch at the end of the fourth quarter of 2008. However, it neglects to mention that the $2 billion charge is an accounting charge that would be (and was) reconciled through the application of purchase accounting upon completion of the merger - and thus had no effect on the books and records of Bank of America after the merger. That testimony has been provided to your Office. We can only interpret your Office's allegations as reflecting a frustration that the truth does not fit its preconceived notions.

So, the $2 billion goodwill impairment (which was not disclosed - we presume you do not dispute that), effectively transferred losses from Merrill's balance sheet over to that of BofA, and dare we ask where the corresponding debit came from - could it be, dare we say it, TARP? Ah, the beauty of purchase accounting. And in the process, not only did BAC write down the assets to 0, but at day one it immediately accounted for them where- 90 cents on the dollar? 95? One recalls statements by Mr. Lewis in March how BAC had record profits. Would this purchase accounting gimmick have anything to do with it?

Regarding the issue of Merrill Lynch's forecasted losses after the meeting where shareholders were asked to vote on the merger and the determination that Bank of America believed it had a good-faith basis to consider whether there had been a material adverse effect, no law required the Bank to report publicly the contents of its private conversations with its regulators or its contemplation of the termination of the merger. Nor did any law require Bank of America to report the intra-quarter results of Merrill Lynch. Bank of America
and Merrill Lynch properly reported Merrill Lynch's results when they were required to do so - after the close of the quarter. We have responded previously to the erroneous suggestion that Bank of America decided against invoking the material adverse effect clause " when the jobs of its officers and directors were threatened by senior federal regulators." Bank of America decided not to invoke the material adverse effect clause because that determination was in the best interests of Bank of America's shareholders.

Ooohhh, where to start with this one. How about here.

Lewis first tried to call Paulson at Treasury, and was given his
cell-phone number. He eventually reached the Treasury secretary at a
ski cabin in Colorado. Paulson—known as “The Hammer” since his days on
the offensive line at Dartmouth—did not mince words with Lewis. “I’m
going to be very blunt,” he said, according to Lewis’s deposition.
We’re very supportive of Bank of America and we want to be of help,
but the government does not feel it’s in your best interest for you to
call a MAC.” According
to Lewis, Paulson told him the government felt “so strongly” about this
that he said, “We would remove the board and management” if Lewis tried
to invoke it. At that, a shaken Lewis stood down again.
He later said
he knew that Paulson wasn’t joking around, and “that he wouldn’t say
something that strong if he didn’t feel like it was a systemic risk as

Little did Bank of America's shareholders know that preserving Ken Lewis' job was in their best interests. Your letter will help clarifying that.

Continuing with Cleary's letter:

Finally, with respect to the issue of disclosure of Merrill Lynch's forecasted losses in the fourth quarter of 2008, Bank of America's position has been that the forecasts - which reflected Merrill Lynch's estimates regarding the losses it might suffer at a point in time well before the close of the quarter, and were dependent on Merrill Lynch's assessments of the condition of global securities and credit markets during an extraordinary period of well-reported and acknowledged market volatility - were not appropriate for disclosure, especially in light of, among other things, the extensive risk disclosures Bank of America and Merrill Lynch had already issued. The letter refers to testimony that Bank of America's then-general counsel gave advice at the beginning of December about whether or not he thought there was a material adverse effect (without disclosing that advice), but the testimony is uncontroverted that Bank of America did not consider invoking the material adverse effect clause until the middle of December, after the shareholders voted to approve the merger and after Bank of America had received updated forecasts including the actual results for November 2008.

Lot of verbiage for basically what was non-disclosure of a material fact securities violation. However as the Regulator was already engaged on settlement track for other related issues, it apparently was not in the SEC's utmost interest to pursue every aspect of BofA's presumed wrongdoings.

The full letter for our readers' hearty enjoyment:




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andrew123's picture

Tyler, I just hope the Judge is reading this (or you are otherwise presenting your analysis).

Crude Oil Trader's picture

The recession does not end until the American public gets vengene so to speak, Lewis is not enough. Paulson on the other hand?

barnvette's picture

Greta, on Fox News, actually covered this story tonight. Maybe some traction is growing here. To all you kool-aid drinkers, listening to Obama speech, you should read Thomas Sowell's article in Front Page called "Listening to a Liar."


Fish Gone Bad's picture

Paulson got a "get out of jail free" card before he starting acting like an atomic turd.  He was allowed to be a fucking asshole, and there were ZERO consequences for him.  Who was the giant punchbowl turd?  Paulson.  I am thinking "bowl cut" Bernanke has a similar card excusing him from destroying the United States. 


Dear _______ please excuse Ben Bernanke from destroying the United States.


The President of the United States

michigan independant's picture

Never crap where you eat. Tax payers to easy to herd so why would Chinmerica care for all the formality's of law and contract. Since when did Washington wind up there moral compass to there citizens? They will just vote as lemmings do. The only power they have is the cash in there serfs pocket to do what shut the beast down. Kool aid the drinks for kids top to bottom.

Michael's picture

The antidote for poison Kool-Aid is Zero Hedge, Calculated Risk, and Mish's Global Economic Trend Alalysis.

Michael's picture

I really don't know what perspective this Bloomberg article is trying to steer us in but all I know is, Cap and Trade and carbon trading will be dead soon.

CO2 Auction Prices Set to Fall Amid Senate Delays (Update4)


Michael's picture

I really don't know what perspective this Bloomberg article is trying to steer us in but all I know is, Cap and Trade and carbon trading will be dead soon.

CO2 Auction Prices Set to Fall Amid Senate Delays (Update4)


Ned Zeppelin's picture

Take no chances. Please email your Senators to kill this GS enriching carbon bullshit.

ZerOhead's picture

As will the myth of anthropogenic global warming.

Anonymous's picture

Men of low degree are only vanity and men of rank are a lie; In the balances they go up; They are together lighter than breath. Do not trust in oppression. And do not vainly hope in robbery; If riches increase, do not set your heart upon them. Psalm 62:9-10

Anonymous's picture

Crap Your Tax is dead. As messed up as everything is maybe this is the spark to clean this sheet up.

Careless Whisper's picture

That law firm needs to be charged with something based on their ridiculous letterhead. 

B of A attorney Liman (real name) said in his letter " law required the Bank to publicly report the contents of its private conversations with its regulators or its contemplation of the termination of the merger."  

Oh really.


Ned Zeppelin's picture

In my fairly long career as a business lawyer, I have developed my own, simple system for detecting bullshit, or a "tell", that ZH readers (as truth seekers) will appreciate: the longer the letter, the more worried the lawyer is about his client's position, and by extension, his own predicament in terms of malpractice exposure.  If your position is correct, justification can be provided swiftly and succinctly, as in "section blank says this, so thank you very much."  If, on the other hand, you must engage in marshalling all sorts of minimally persuasive "peripheral" supporting positions, so as to impress by the sheer collective weight, you have a loser on your hands. This works every time. I 'd always allow for an exception, but haven't seen one yet.

It's like paying for something with pennies, when a dollar would have worked - you ask, "where's the dollar? Me thinks he does not have one in his wallet." The negotiation balloons deflate rather rapidly once you understand this, and figure out who has the leverage.

This one is a loser. Game over. Judge, where do we throw ourselves at your mercy?

deadhead's picture

Ned...though not an attorney, my exposure to the field is heavy and your summary above is one of the best and most succinct I have seen.  I have heard the same position as yours from other (bright) attorneys. 

This statement of yours hits the nail squarely: "If your position is correct, justification can be provided swiftly and succinctly, as in "section blank says this, so thank you very much."

Excellent post and one that should be read by those not familiar with law/legal profession.

Anonymous's picture

As an attorney, I believe this philosophy goes way beyond the boundaries of the law...

Although, the other issue is $. Lawyers also "get paid by the pound," and although I'm sure these lawyers aren't hurting for cash, I see blatant time sheet gouging routinely. A big letter might mean there is a flimsy case... it might also mean the attornies are trying to get some more hours. I'd bet on the former in this case.

Also, this is absolutely what we're going to have to do to uncover anything. If you pit all the parties "in the know" against one another, you'll find the truth through finger pointing. Put the lawyers on the chopping block and they'll come clean about the facts of the case (although it will take a court order forcing them to disclose or a perceived leather strap holding their head to the chopping block before they'll do so, they'll eventually capitulate). We're on the right track. If you want to talk about green shoots, this is a good start.

ZerOhead's picture

Good system Ned...

By the way is or isn't waterboarding still a legal enhanced interogation method?

Crack one nut and you won't be able to shut the others up...

deadhead's picture

TD said: "Lot of verbiage for basically what was non-disclosure of a material fact securities violation."

This sums most of the matter as far as I am concerned.  The other part has to do with Paulson to wit, I don't know if he violated any laws but there sure is something rotten in denmark when a treasury sec'y threatens a ceo in the manner in which has been reported.

Commander Cody's picture

The lawyers are under the bus, feel uncomfortable there, and wish the real players would join them.  Get out of jail cards for everyone?  Perhaps not.  Go judge! 

Anonymous's picture

Debt per US citizen and counting: