Dear Wachtell Lipton: Meet Oncoming Freight Train; Bank Of America Waives Attorney-Client Privilege

Tyler Durden's picture

A month ago Zero Hedge speculated that the SEC was preparing to throw Wachtell Lipton and Ed Herlihy at the wolves, in case its planned settlement to indemnify Ken Lewis of all sins failed. Well, it failed, now that a jury trial is in the works to determine just how guilty Ken Lewis et al have been of shareholder fraud. And, as expected, Wachtell Lipton is about to be run over by a 200 ton freight train.

The WSJ is reporting that not only is BofA completely changing its stance on attorney-client privilege (such a huge "ethical" sticking point previously), but that it will promptly hand over "troves of documents to the federal, state and Congressional officials who are investigating the Merrill purchase." One hopes, but doubts, that a case of obstruction of justice can one be made out of BofA's pathetic attempt at stalling and delaying the judicial case.

At the end of the day it is so nice of Ken Lewis to start the process of ratting out his closest accomplices and confidants. But with a prison sentence no longer out of the question, the man's true nature, full of integrity and milk of human kindness, finally shines through. Ken better avoid jail altogether or he will have quite an unpleasant time: at least Bernie Madoff did not rat anybody out.

From the WSJ:

Bank of America
Corp. agreed to hand over documents that detail the legal advice it
received during its purchase of Merrill Lynch & Co., according to
people familiar with the situation, a sharp reversal after months of
resisting such a move.

The new legal approach is in part intended to pave the way to a
settlement of various investigations, say people familiar with the
matter. It's also designed to ease pressure on the bank as it works to
restore stability amid the unexpected departure of chief executive
Kenneth Lewis at the end of 2009.

The board voted to waive the privilege on Friday. On Monday, the bank
informed Mr. Cuomo's office that it had reversed course and was waiving
its privilege.

The shift will likely result in the bank handing over troves of
documents -- including emails and memos between Bank of America and its
outside law firms -- to the federal, state and Congressional officials
who are investigating the Merrill purchase.

BofA's move will likely reveal exactly what advice was provided by
outside firms Wachtell, Lipton Rosen & Katz, which represented Bank
of America during the Merrill transaction and a long and trusted
advisor to the bank, as well as Merrill's counsel, Shearman &
Sterling LLP.

"You can see where this is going," said James Cox, a law professor at
Duke University. "This is going to get to the down and dirty question
of what counsel did say and did not say, what counsel meant and did not

Perhaps it is time for a blustering Lewis Liman of Cleary Gottlieb to recant as well at this point? Let's not forget the lawyer's ever so insightful words to Andrew Cuomo: "We can only interpret your Office's allegations as reflecting a
frustration that the truth does not fit its preconceived notions." Our advice to Cleary's lawyer for witty soundbites: he who is frustrated last is frustrated best. We sure hope Mr. Liman can agree.

And speaking of advice, we would like to suggest that Ed Herlihy picks his friends better. Especially as the current roster seems dead set on making every mistake postulated by John Nash in the classical prisoner's dilemma paradigm. The only question is who will actually end up being the real prisoner. Because at this point it is very likely that someone is going to jail.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
glenlloyd's picture

I would be seriously surprised if there weren't a few shredders running somewhere, 24-7.

Cognitive Dissonance's picture

I've always said that Wall Street, when push comes to shove and it looks like perp walks are around the corner, would put the Donner Party to shame with how quickly they'll eat their own, or in this case, throw their own to the curb.

After all, in my best imitation of Tony Soprano, "It's just bidness."

SWRichmond's picture

Shredders are worthless in the electronic age.

John Self's picture

Unless you're Bill Lerach.  Then they make for a really good prop.

andrew123's picture

Tyler, do you rally believe that anyone is going to go to jail?  Can't everyone use the "implicate Ben, get out of jail free card"?

sgt_doom's picture

Why yes, andrew123, Martha Stewart is sure to go to jail.....

deadhead's picture

from b'berg, just published.

New York Case

In another case, Bank of America hired Paul, Weiss, Rifkind, Wharton & Garrison to join its legal defense as it prepares for litigation with the Securities and Exchange Commission in federal district court in New York, bank spokesman Lawrence Di Rita said.

The bank previously hired Cleary, Gottlieb, Steen & Hamilton to work on regulatory issues.

“We are augmenting our legal team with Paul Weiss,” Di Rita said today in an interview. “Cleary remains our lead counsel, but we are adding expertise and we continue to prepare and present our facts to the court.”

Mad Max's picture

Are they just hiring all the Wall Street firms in order to conflict them out of being adverse to them?

Fritz's picture

Throwing Law Firms under the bus is a good start.

waterdog's picture

Wow, it is actually beginning to unwind. That must be one heck of a vice on that bench.

Someone wake me when the the dollar smashes 73.

SWRichmond's picture

I think there's pretty broad consensus that the precipice is 71.

deadhead's picture

Once again, thank you for keeping on top of this matter TD, which I consider perhaps the most crucial matter of the financial mess that we have.  I won't reiterate the reasons, but this will sure make a great book some day.

It does seem more likely that more of the truth and facts will come to light. 


President Obama: Mary Schapiro from the SEC must be let go immediately.

I would also like to point out to you, Mr. President, that Lloyd Blankfein of Goldman Sachs had these unflattering words to say about the SEC, as quoted by H. Jenkins in the WSJ (10-10-09): "...the SEC had failed in its supervision, and its validation wasn’t good”. Further, Mr. President, Mr. Blankfein said this in the same article: “The SEC’s imprimatur, he says, had become worthless after the Bear Stearns and Lehman debacles.”

Mr. President: For pete's sake, why are you delaying Schapiro's removal?

Miles Kendig's picture

An unlikely outcome is on the horizon DH.  Keep up the pressure and have some faith. There is more going on than meets the eye. One thing is certain. CB said that there is lots of fear now and he wasn't joking.

Take care.

sgt_doom's picture

And, Mr. Prez, while you're showing Schapiro the way out the door, please make sure that Geithner, Summers, Bernanke, Farrell, Tyson, Holbrooke, Hormats, Allison, Orszag, O'Toole, Emanuel, oh....and pretty much anyone else similarly situated.

chet's picture

Who knows what those records show.  The board could be throwing a few corporate officers to the dogs as well.  Although, sticking the whole thing on the lawyer makes more sense.  He'll claim some sort of "hold-blameless" clause that will get everyone off scot-free.


It's the Bush Justice Department defense:  "The lawyer told me to do it."  "I'm just a lawyer giving my position."

Anonymous's picture

It's a variation on the old "I was only following orders" defense. Hopefully it will work just as well. According to case law this defense dates back to the case of Adam v. Eve wherein the defendant claimed "The woman made me do it."

Miles Kendig's picture

One thing is certain.  No one involved in this process can be called maistro.

Unscarred's picture

I had no idea that LeVar Burton from Reading Rainbow was a street thug before the '87 crash!  I'm going to have to rethink my entire childhood...

Village Idiot's picture

I pity the fool! - Mr. T

ChickenTeriyakiBoy's picture

The role of law firms in creating this crisis has been overlooked for too long. And not just the questionable transactional work, like the episode in question, but all the structured finance practice that riddled our system with petards now throwing crap all over all of us. 


This is a good start. Who's swallowing the poison pill now?

deadhead's picture

gotta disagree with you on this one, chicken.  blaming the attorneys is bogus.

remember, lawyers don't sue people. people sue people.

btw, I am not an attorney. 

Careless Whisper's picture

That's right.

Lawyers aren't getting thrown under the bus, Ken Lewis is.


Mad Max's picture

I generally agree with this but in the case of structured finance, so much of the whole concept was created by lawyers that this might be an area for different treatment.  On the other hand, lawyers can plead, mostly honestly, that they only created the legal structure, they didn't induce NINJA loans, rating-agency fraud, or 20 other essential components of the systemic fraud that lead to meltdown.  Most lawyers I know aren't especially good at math anyway, much less economics or financial modeling.  The few exceptions I know don't work anywhere near the big firms.

Careless Whisper's picture

they very good at simple math, like billable hours.

ChickenTeriyakiBoy's picture

deadhead--i don't think it is bogus to say that their role in this has been overlooked. it is true to say that there were 20 other moving parts that created this fragile situation, like the loan officers, regulators, ratings agencies, banks, boards, etc etc. BUT lawyers are a part of the formula that has not been addressed. there are perverse incentives in the attorney-client relationship in the context of structured finance. 


maybe it's true that wachtell will benefit from the impression that they have fallen on a sword for their client. maybe not. it depends what kind of picture cuomo is able to paint when all is said and done. remember how milberg weiss went from deputized shareholder activist in the clinton era to pariah of american capitalism hounded by bush justice dept? sufficiently adversarial prosecution could lead this down a similar path.

HEHEHE's picture

Kudos to ZH for being on top of this angle since the beginning of this train wreck.  It took your buddy Brucie Wasserstein's American Lawyer pubs until October 1 to write about Wachtell's dilemma.  No wonder he wanted to try and discredit you guys; you keep beating his fat @ss to the story:)

monmick's picture

Funny how loyalties to The Club unravel when the prospects of sharing a 6 X 6 cell with Bubba becomes real...

FischerBlack's picture

Wachtell, Lipton will take the fall for everyone and being that they are not regulated by the Treasury, Fed, SEC, FINRA, FDIC, etc, they will have no piper to pay, except maybe a ceremonial legal malpractice case which they will promptly settle and everyone, *everyone* will want to hire the firm that fell on its own sword to save their client.

Don't you guys understand this yet? Only the lawyers win. Every time.

skippy's picture

May the term *open for business* find a new definition in their minds, after a spell in the gray bar hotel.

@deadhead too right Mary Schapiro has to go!

@Fisherblack all the more reason to keep the spotlight burning on it, by TD and et al.

Skippy...If I was the prosecution, I would send them a free DVD looping the gimp/barrel scene to Pulp Fiction free of charge or play the audio (on cell phone) prior to the commencement of proceedings everyday in court, with a loopy smile on my face. Sorry folks just my ring-tone ya know>/O.

small watcher's picture

The board voted to waive the privilege on Friday. On Monday, the bank informed Mr. Cuomo's office that it had reversed course and was waiving its privilege.

Who else here would have liked to have been a fly on the wall for that Friday meeting?

But did the board decide to "reverse course" because they felt threatened by some new development, or were they confident that they could finally release all the documentation, as their internal black-ops department had finally finished building the fake paper/electronic trail...

BTW, has anyone seen my tinfoil hat?

Anonymous's picture

Ed Herlihy is smart enough not to use email. There will be plenty of cover for all involved. Don't worry. Ed is as much buddies with Dodd, Geithner and Blankfein as he ever was with Lewis (though Lewis was the chump who paid WLRK lavishly all these years). Believe me, WLRK is not going to get one hair of its piggy snout out of place from all this.

JR's picture

Why does the Democrat prosecution see the speck in Lewis’ eye and fail to notice the log in Bernanke’s and Paulson’s?  This is Yom Kippur (scapegoat) justice whereby Lewis is the scapegoat on whom the crimes of the Bernankes and Paulsons have been placed and sent away to perish to distract attention from the real perpetraters of this massive securitization fraud fallout.

Who are the shareholders that attacked Lewis at shareholder meetings? Was taxpayer money and state employee funds invested in BoA used by the Obama Administration for these political attacks?

Was it not Paulson and Bernanke who risked sinking BoA if need be, so Merrill’s creditors would be paid?  Is this not merely another “follow the money” whodunit trail that leads to why Hank and Ben forced Bank of America to drink Merrill poison, forcing it down the throat of this giant retail bank with billions of taxpayer dollars?  “You’re going to take it, and like it, to help swallow Merrill, so be a good citizen or else you’re fired—it’s essential, for the health of the economy.” A normal man who’d increased his bank’s deposits to more than $1 out of every $10 in 8 years, would die of apoplexy from the injustice of this "trial."   

Isn’t the bigger crime that taxpayer dollars were forced upon a solvent BoA to help Merrill pay off its gambling debts?  Is it a stretch to suppose a big wad of that money ended up in the pockets of JP and Goldman and maybe even its star, Hank Paulson?

Wasn’t it Bloomberg that wrote in September 2008: “As much as $37 billion from federal bailout loans to American International Group Inc. went to investment banks including Merrill and Goldman Sachs Group Inc…  Without the government money, Goldman, Merrill Lynch & Co., Morgan Stanley, Deutsche Bank AG and other firms could have become some of the biggest creditors in a bankruptcy filing by AIG, the world’s largest insurer, because of its billion in losses on subprime bonds and corporate debt…”

Didn’t Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York, say, “We didn’t just save AIG.  We saved the counterparties…”?

Aren’t the same “counterparties” always being saved?

It was Henry Paulson and Ben Bernanke who steamrolled Ken Lewis into mislseading his shareholders, who forced a deal for Bear Stearns and set the initial price and decided not to backstop a deal for Lehman Brothers.

The judge and the jury are missing a critical point in this mock trial.  Who benefits.  When the owners of the Federal Reserve—Goldman, Morgan et al.—claim their actions are only meant to help the national economy, it’s getting to be a difficult yarn to swallow, especially when those actions directly benefit these private banks.   And when a private company, like Goldman, has its people in financial power positions here and around the world and sitting elbow to elbow with the President every day in the Oval Office, suspicion of public process for private profit is too strong to be ignored.

Government intervention in financial markets is one thing, but private business wearing a judicial robe is beyond the pale.

I ask the same question that Ben Stein asked on December 2, 2007, in The New York Times:

“From what I have observed over the years, Goldman has a fascinating culture. It is sort of like what I imagine the culture of the K.G.B. to be. You always put the firm first. The long-ago scandal of the Goldman Sachs Trading Corp., which raised hundreds of millions just before the crash of 1929 to create a mutual fund, then used the fund's money to prop up the stocks it owned and underwrote, was a particularly sad example. The fund, of course, went bust…

“Here is a query, as we used to say in law school: Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct (peddling C.M.O.'s, as it was also shorting the junk on a titanic scale through index sales), be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman?”

deadhead's picture

very well stated, very well reasoned.  excellent contribution JR.

this entire matter is just such a huge pile of fecal matter.

I scan the gamut of information sites daily and I am hard pressed to find someone who can lead us out of this mess based on the foundations of truth and open disclosure to the American people. 

Anonymous's picture

ben bernanke is indeed the master mind behind the
crime as he was so desperate to prove that his
academic horse crap really was good shit....he is a
pretentious arrogant pompous preening ass who is so
in love with his coneited brilliance and will
trample anything and everyone to prevail with his voodoo economics.....he is a punk bitch...

Careless Whisper's picture

Yes it was Bernanke and Paulson that steamrolled Lewis. Lewis is a pussy. No balls. Betrayed his shareholders. Lied about MER bouses. Overpaid for MER. Lewis is scum. Paulson and Bernanke, they scum too, which I think is pretty obvious.

SWRichmond's picture

Keep the pressure on your congresspeople.  We need more video snippets of high-ranking kleptocrats invoking the fifth, or claiming executive privilege.  Scream at your congresspeople, demand investigations all the way to the top.  Make them feel unloved.  More pressure!

Mad Max's picture

I sure wouldn't want to be the Wachtell partner who was peripherally involved in this matter when it first came up but lost the firm's popularity contests this year (low hours, lost a big client, just generally not the firm's favorite guy, etc.).

SayTabserb's picture

No doubt Wachtell advised BofA to waive the privilege, with the enthusiastic support of the SEC and AG Cuomo. It makes everything easier. BofA has the defense of reliance on counsel.  Wachtell opts for reasonable limits of zealous advocacy. Sure, a few million shareholders got hosed, but we protect our own. Don't assume the fix is not in on this one. It will be up to Judge Rakoff to protect the public, as usual.

Anonymous's picture

I hope they all go down harder than a lead balloon into a flaming lake of napalm!

Anonymous's picture

I have the uneasy feeling that a lot of stuff is laying the groundwork for SEC saying the case before Judge Rakoff is moot. Hope I'm wrong.

Assetman's picture

At some point, Ken Lewis ultimately made some very bad decisions, then compounded it my concealing the issue.  Despite whether the lawyers gave him bad advice is beside the point.

The law firm can probably weasel out of this with little damage if they play their cards very carefully.  Of course, if there were enough evidence to prove they gave advice that blatantly strretched the bounds of legality, that's a problem.  I just don't see it going that far.

The best thing that Ken Lewis could do would be to implicate Bernanke and Paulson, and have evidence to support he was being coerced.  That would be rich.

deadhead's picture

The best thing that Ken Lewis could do would be to implicate Bernanke and Paulson, and have evidence to support he was being coerced.  That would be rich.

Agreed.  Nice summary assetman.

Anonymous's picture

The only swords people will be throwing themselves upon in this case, are the magician's spring-loaded trick swords. There is no honor among these Wall-street thieves, their lawyers, regulators, or anyone else feeding at this greed banquet. Ignore the smoke, mirrors, sleight of hand, beware the rhinestone covered DD breasts of the magicians assistants, and simply follow the money.
I would bet my entire supply of gold and ammo that nobody with any real responsibility for this travesty will do one day in Jail, a few ignorant flunkies and might get thrown to the wolves, but none of the responsible players will see justice, not in this lifetime.

This is TomJoad. (Still can't get through the firewall)

Ned Zeppelin's picture

Interesting news, but changes nothing.  The waiver of the privilege simply means there will be ample evidence that Lewis and his Board either relied on foolish advice, or perhaps we'll see a smoking gun from a junior partner pointing out that securities fraud is being committed.  BofA management cannot abdicate their responsibilities under the securities laws - all they are ding here is adding a defendant, and at that a defendant which I can almost guarantee will have protected its back and will emerge relatively unscathed. But a side show nonetheless.

JR has it right up top. The RICO claims would have to name Paulson and Bernanke - the facts reveal they were the architects of the plan to acquire Merrill. At least 2 times duing the timeline of events Ken Lewis was very seriously thinking about invoking the MAC clause (material adverse change) in the merger agreement that would have in effect given BofA a pass from its contractual obligation to proceed.  In each case Paulson in particular threatened, cajoled and finally "bribed" Lewis (with deliberately undisclosed federal guarantees) to go ahead with the merger.  At the very least they must be named as co-conspriators, even if unindicted. There is no way out for that. Now, do they have immunity, a get out of jail free card, or a waiting pre-agreed upon pardon? who knows. But drag theri names through this, I say, and let the truth be known: why were Paulson and Bernanke dead set on rescuing Merrill? Whose interests were being served? Follow the money.

deadhead's picture

I was looking forward to your update Ned...thanks for sharing your thoughts.

As to: "...(with deliberately undisclosed federal guarantees)..." I really want to see if information comes out about this little guy. 

Agree on Paulson, Bernanke in terms of the fact that they were stones deep in this shit.  If they violated any laws (it appears to me at this point that they did), they must be tried.  I fully understand about the pardon issue, but I won't take a stab at that because it could be dependent on the political climate at the time.  Obama worshippers detest wall st/banking/fed/treasury complex and sooner or later they will force O's hand on this matter.  They are way too caught up in health care and other issues right now, allowing the fed and treasury shenanigans to continue relatively unscathed. That will change barring a complete and miraculous economic recovers, which is simply not in the cards from where I sit.



ChickenTeriyakiBoy's picture

deadhead, responded to you above. is there another deadhead half as economically literate as yourself. 


"the wheel of fortune has a flat tire"

Anonymous's picture

I wonder if Wachtell Lipton will use BOA's disclosures as an opportunity to air out its dirty laundry on BOA as well.

This could get real interesting...but it will take forever, and Mr. Lewis will be long gone by then.

Anonymous's picture

Interesting that BOA hired Paul, Weiss, most famous for representing Milken in the most epic Wall Street battle of the late 20th century. These guys are not there to settle. They advised Milken to fight until (and beyond) the bitter end, with the most notable tactic of keeping everyone on the defense side of the table from talking to anyone on the government side of the table (the fingers in the leaky dam approach), which worked until it didn't. You can be sure that their approach will be scorched earth in nature.