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Full Suit By Andrew Cuomo Against Ken Lewis And Joe Price
Highlights from the suit:
By early December 2008, Bank of America’s top management, including its CEO Ken Lewis and CFO Joseph Price, had two choices: they could tell the Bank’s shareholders about the huge material losses at Merrill since the merger proxy was filed, or they could hide them. Bank management chose to hide the information. In particular, Bank management failed to disclose that by December 5, 2008, the day Bank of America shareholders voted to approve the merger with Merrill Lynch, Merrill had incurred actual pretax losses of more than $16 billion. Bank management also knew at this time that additional losses were forthcoming and that Merrill had become a shadow of the company Bank of America had described in its Proxy Statement and other public statements advocating the merger. The Bank’s management thus left the Bank’s shareholders in the dark about fundamental changes at Merrill that were obviously important to their voting decision. These disclosure failures violated New York’s Martin Act.
Having obtained shareholder approval for the deal, Lewis then misled federal regulators by telling them that because 50% of Merrill’s tangible equity had disappeared, the Bank could not complete the merger without an extraordinary taxpayer bailout. Lewis went onto say how the Bank needed to “fill the hole” left by the unprecedented losses, which contradicted his public statements to the effect that the Bank would not need additional capital. Remarkably, between the time that the shareholders had approved the deal and the time that Lewis sought a taxpayer bailout, Merrill’s actual losses had only increased another $1.4 billion. The Bank’s management has not and cannot explain why they did not disclose to the Bank’s shareholders losses so great that, absent a historic taxpayer bailout, they threatened the Bank’s very existence.
On November 13, when Price knew of at least approximately $5 billion in after tax losses, Bank of America’s General Counsel, Timothy Mayopoulos, and lawyers from its outside law firm, Wachtell, Lipton, Rosen & Katz, determined the Bank should disclose the losses. The lawyers discussed the date of the disclosure, the manner of the disclosure, who would draft the disclosure, and that Price would approach Merrill CEO John Thain about the disclosure. Shortly thereafter, however, the decision was reversed, Wachtell’s role was marginalized, and the Bank made its own decision not to disclose. Outside counsel was never again consulted about disclosure, even after the losses later doubled.
By December 3, Price knew that known losses to date exceeded $8.5 billion after tax and that billions more in losses were coming, because that day he met with executives, including Lewis, to discuss those losses. Lewis was also aware of the disclosure issues, because Price updated him on disclosure and loss issues. Price knew, based on his conversations with Mayopoulos, that crucial to Mayopoulos’ disclosure advice was whether Merrill’s losses for the entire quarter could exceed what occurred in its prior five quarters, a range between $2.1 billion and $9.833 billion after tax. Price only told Mayopoulos about an increase in losses to $7 billion, as opposed to what he actually knew or should have known: that known losses plus further expected losses would exceed $10 billion in total after tax losses.
On December 4, Price learned that Merrill’s actual pretax losses had grown to $11.769 billion, and knew or should have known of an additional $2.3 billion in goodwill writedowns that brought the total to over $14 billion. By December 5, Price knew or was reckless or negligent in not knowing that Merrill’s losses had swelled to $16.2 billion pretax with goodwill (approximately $10.4 billion after tax), surpassing all thresholds set by Mayopoulos. Price did not tell Mayopoulos any of this information prior to the shareholder vote.
Mayopoulos sought out Price to discuss the increased losses, but was told that he was in a closed-door meeting and could not be interrupted. The next morning, before he had a chance to address the increased losses, Mayopoulos was summarily terminated and escorted from the building on the spot. The Bank replaced Mayopoulos with Brian Moynihan, a board favorite who had not practiced law in 15 years, had an inactive bar membership, and held the position for only about six weeks. Moynihan is now the Bank’s CEO.
...
After the fact, in testimony before this Office and elsewhere, Lewis claimed that this position only changed after the government instructed the Bank not to invoke the MAC clause or renegotiate, but instead to take taxpayer aid in return for completing the merger. Lewis claimed, in effect, that he had been strong-armed by the government.
This account is belied by the facts uncovered by this Office. Contrary to Lewis’ after-the-fact account, the evidence shows that the Bank never intended either to renegotiate or to terminate the merger using the MAC clause. In fact, the Bank’s management knew almost immediately upon conferring with its outside lawyers that renegotiation was impossible, because it meant going back to the shareholders, and public knowledge of the endangered deal would likely destroy Merrill. Likewise, the Bank was informed by its outside lawyers that invoking the MAC clause would likely prove a futile exercise that could destroy the Bank.
The evidence further demonstrates that almost immediately upon reviewing the December 12 loss analysis, the Bank planned to seek taxpayer aid to save the merger, and to use the empty threat of a MAC claim as leverage with the government in negotiations.
The Bank’s plan worked, and it received the taxpayer aid, in an amount exceeding $20 billion, on top of $10 billion already committed prior to the December negotiations, for a total of approximately $30 billion in aid. As a result, the merger closed as planned on January 1.
By this date, the cash portion of Merrill bonuses for 2008—$2.5 billion—had been paid out. These cash bonuses, which with the non-cash portion would eventually total $3.57 billion, were paid for the worst year in Merrill’s history. It was the year, in fact, that would have seen the firm’s destruction absent a taxpayer bailout.
On top of everything, the Bank failed to tell its shareholders that, in addition to buying a company that would have destroyed the Bank without taxpayer aid, it was going to permit that company to pay the $3.57 billion in bonuses in a manner and at a time completely inconsistent with its prior practice. The amount, criteria and timing of the bonus payments were omitted from the proxy.
And the conclusion:
In short, in the process of acquiring Merrill, the Bank’s management misled its shareholders, the public, its board and its lawyers by concealing Merrill’s disastrous fourth quarter financial results in order to secure the shareholders’ uninformed approval of the deal. The Bank’s management then salvaged this potentially crippling situation by extracting billions in taxpayer bailouts by misleading the federal government. They did this, in part, by threatening federal officials that they would terminate the Merger Agreement based on a material adverse change—virtually the same material change they failed to disclosed to their shareholders prior to the vote. This action seeks redress under New York’s Martin Act for this conduct.
We just wonder why there is no criminal component to all these charges against Lewis. We are confused why Bernanke and Paulson are exempt from charges due to their complicity in all these alleged actions.
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It's so obvious that Paulson is the criminal. Lewis is only guilty of being a pussy for not telling Paulson to f-off and quiting his job.
Our government is a criminal organization.
Obviously, you fail to grasp the apocolyptic situation that Paulson saved us from you ingrate. Paulson was our savior ... if you don't believe me, just ask Paulson. //sarcasm, duh
I understand your sarcasm and you help make my point.
Imagine being approched by the Treasury Secretary of the US and being told "Do this and you'll be doing a favor for the entire country. And by the way, if you don't do this, you're done for."
It can only go 2 ways. If Paulson saved us from the evil irrationality of free markets, then Lewis did too. If Lewis is a criminal, then Paulson was a criminal first.
I suppose it depends on your perspective on the "rule of law"
I watched Charlie Rose interview Paulson last night. Paulson is either a complete, stuttering idiot (unlikely, since he never would have risen to head GS), or he struggles mightily to say anything at all while attempting to remember the string of lies that have been chained together.
During the interview, he declared he could have made no better decisions than those enacted, stated that if he were omniscient (godlike?) he would have changed no actions, and used the possessive "we" when referring to Goldman Sachs. He also blinked about 60 times per second.
The man was unable to answer a single question put to him in a logical or comprehensive way. He reeks of corruption.
Copy that, Comrade Jim!
Obviously, Paulson must be hailed as an All American hero for not taking those sleeping pills too!
The guys a saint --- Hey, let's burn him at the stake like they did some of those other saints.
Sounds like a keeper.....
+10. Paulson is the real villain here. But Lewis showed a lack of character. A leader must fall on his sword sometimes. Lewis should have screamed from the rooftops what was happening, rather than protecting his job at the expense of shareholders.
But rather than being the fall-guy, he should be a material witness in Paulson's trial for the far more egregious crime.
Give them both the sword?
I can go with that option as well.
They went after morgan stanley before this. John Mack told them to f' off. This is a great video.
John Mack on Saving Morgan Stanley, Inside the Bunker
http://www.youtube.com/watch?v=R9sQtmPAYO0
Yes but maybe Coumo has to go after Ken Lewis in order to get the goods on Paulson. Maybe. I hope.
Yes, Paulson's actions and Bernanke's in blackmailing Bush and Congress by threatening that there would be marshall law and chaos if TARP was not passed shows what his mo was.
welcome to the circus. everybody loves a clown (or two or three or four or five....).
Top quality federal law enforcement,,,that is what The SEC is.
Makes me proud to be a citizen of the United States of America,, a non-profit enterprise.
It smells like criminal fraud to me. But the criminal trial would require a higher standard of proof. BofA will mega-lawyer up ( the lawyers always get rich on a mess like this ) and the whole gang will screw around with this for years. It's another one of many accusations coming down the pike.
When appeals are complete after the umpteenth time , the screwed shareholders holding long through this entire deceptive mess will get the usual reward.....nothing.
They only need to hold out until the combined firepower of Wall Street and their friends in NY State govt can be brought to bear on the AG's office (with covering fire from Washington). What is the AG's budget for this, anyway?
the lack of criminal charges is astounding.
on the 2nd proposed SEC settlement, I really hope Judge R tells the SEC to phuck off again.
Couldn't that be next? It seems like a logical progression.
DH, you and I need to kick back with a couple of cold ones, some Garcia ballads on the Cd player ("Loser" as Paulson's theme song comes to mind). and chuckle over where we said this was going months ago.
Paulson's feverish efforts to revise history will prove to be ineffective. There is no way Lewis does not implicate Paulson and Bernanke in the conspiracy to defraud BofA shareholders.
And it may be too early to bemoan the lack of criminal charges. Wait.
i hate lewis, he is scum. came into my town buys $19M third maybe fourth home and than sicks his attorney on his raised increased property taxes with an appeal. all these scum bankers came in and ruined it with their stench, including ken “crooked E” lay. i hope he rots in hell, lay is for sure.
Nationally prominent, did not get an adjustment
— Kenneth D. Lewis: residence valued at $19.6 million, no adjustment. Lewis is CEO and president of Bank of America.
http://www.aspendailynews.com/section/home/135606
How wacky would it be for BofA to file a countersuit against them. Impossible, I know, but I'm just daydreaming about the spectacle it would be.
Back to the future, Sptizer used Martin act against Grasso and Cuomo dismissed it....Stay tuned for nothing! Just headline getting by Cuomo...
Watched the deft but unconvincing Paulson bob and weave on questioning by the power worshiping Charlie Rose last night. Witnessing Rose handle ruling class notables on his show is like watching an advertising agency launch a new client's TV campaign. Locked in the Tristan-like love-death that they are with each other, swine like Lewis and impressario Paulson deserve to go down together. What troubles me is that nothing decisive will be achieved with court proceedures of this kind. This is still the same corrupt legal system doing the honors, is it not. Better to wait for an inevitable and more reliable peoples' justice.
Ahh... Finally. Now hopefully Lewis will roll over on other banksters and their goverment/Fed co-conspiritors.
I declare the bankster auto-canibalistic orgy to be ON!
There is a real problem with this but I need to read the suit:
Likewise, the Bank was informed by its outside lawyers that invoking the MAC clause would likely prove a futile exercise that could destroy the Bank [what the f - - - ? how would invoking that clause destroy the Bank? ML , yes, Bank? No way.].
The evidence further demonstrates that almost immediately upon reviewing the December 12 loss analysis, the Bank planned to seek taxpayer aid to save the merger, and to use the empty threat of a MAC claim as leverage with the government in negotiations.
This saves Paulson and Bernanke, and makes them look like innocent dupes of Lewis, even fools who gave up big dollars to fuel a foolish, harebrained scheme by Lewis and Price to acquire ML at all costs. That is a goddamn lie. Period. We know and have read a different account of all this, and it involves Lewis as the puppet of The Traitor and Ben.
Perhaps this is how Cuomo plans on softening up Lewis for the testimony he needs for the bigger fish: lay out a theory of the case that leaves Lewis and Price swinging from the lamp posts alone, with Hammerboy and Benny yucking it up, tossing back some beers and dogs, and high-fiving each other in the grandstands. At least, that's the picture I'd paint for Mr. Lewis: "Where are your government friends now, Kenny?"
Well, ol Benny Boy has selective memory and couldn't remember telling one of his cohorts to threaten Lewis with a management change at BOA if they tried to use the MAC rule and pull out of the ML deal. This may get very interesting.
HEY FOLKS, this is a CIVIL indictment. Cuomo is simply looking to cash in on the bailout. He will settle with Bank of America of which BOA will make payment with funds received via bailout.
Lewis walks away scott free and does not have to testify against Paulson, Bernanke, Geithner, etc.
Cuomo and cash strapped NY walk away hundreds of millions richer.
BOA receives fresh cash infusion from the Federal Reserve & or congress.
Again, this CIVIL indictment poses no threat to Lewis or the rest of the gang.
If Cuomo were serious, he's bring CRIMINAL CHARGES.