Ken Lewis Ex-BOFA Chief Charged With Fraud; More Bonuses

Ex-BofA Chief Lewis Charged With Fraud


New York Attorney General Andrew Cuomo unveiled a major legal action against senior Bank of America executives Thursday over its controversial purchase of Merrill Lynch, including bringing civil charges against its former CEO Ken Lewis.

Cuomo's office, which has been aggressively pursuing an investigation into the merger and subsequent bonuses paid to former Merrill employees, said it was charging Lewis and Bank of America's chief financial officer Joe Price, who was recently appointed to lead the firm's consumer banking business.

The lawsuit contends that the bank's management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm's willingness to terminate the merger in order to get $20 billion of additional aid from the federal government.

"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," Cuomo said in a statement.

"This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules."

A spokesperson for Bank of America called the charges "regrettable" and "totally without merit."

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Separately, the Securities and Exchange Commission said Thursday it had struck an agreement with Bank of America over the company's decision to pay $3.6 billion of bonuses to former Merrill employees for fiscal year 2008.

Under the terms of the proposed settlement, the Charlotte, N.C.-based lender will pay a $150 million penalty to its shareholders who were affected by the disclosure violations.

The company also agreed to implement a number of corporate governance changes for the next three years including giving its shareholders an advisory vote, or "say on pay" of its executives.

The settlement will be subject to the approval of U.S. District Court Judge Jed Rakoff, however.

Rakoff scuttled a previous agreement between the two parties last fall, arguing that the original $33 million settlement was not only paltry, but would only impact those who were hurt by the bonus scandal: the company's shareholders.

Bank of America (BAC, Fortune 500) shares fell more than 3.5% in midday trading.








Bank of America Bonuses Could Top $4 Billion


Bank of America Corp., the nation's largest lender, will pay investment-banking employees bonuses of about $4.4 billion for last year, or an average of $400,000 each, a person close to the bank said.

As much as 95 percent will be paid in stock vesting over about three years, the person said. Those receiving the smallest bonuses will get about half their compensation in cash, paid later this month, the person said. The unit accounts for 10,000 people, or 4 percent of the Charlotte-based bank's 283,000 workers.

Bank of America, the target of political wrath for its acquisition of Merrill Lynch & Co. even as the faltering Wall Street firm handed out $3.6 billion of employee bonuses, reaped a $6.3 billion profit in 2009. This year's investment bank bonuses are a third less the than $6.5 billion that the combined units would have paid in the peak year of 2006, the person said, citing internal Bank of America calculations.

"Fixed-income traders are receiving the biggest bonuses at Bank of America and other firms because that was what drove Wall Street profits last year," said Richard Lipstein, managing director at Boyden Global Executive Search Ltd. in New York. "Psychologically Wall Street is paying people compared with 2006 levels because 2008 was such a disaster."

The Financial Times cited unidentified people as saying that top Bank of America performers in global banking and markets will receive bonuses of about $5 million, while managing directors will get $2.5 million to $3 million. Senior investment bankers often receive bonuses that are eight to 10 times their base salaries, which tend to be $250,000 to $300,000, Lipstein said.

"We attempted to balance the need to pay competitively with our understanding of the general concern over the level of compensation on Wall Street," spokesman Bob Stickler said. "The most important thing is that much more of year-end compensation is now deferred and tied to long-term stock performance and there are clawbacks."

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.'s investment bank slashed their compensation in the fourth quarter. The three firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion. The total fell short of the $46.1 billion five analysts expected this year and is almost $10 billion less than what some analysts estimated in October.

JPMorgan's investment bank had the lowest ratio of the three of total pay to revenue, at 33 percent. Goldman Sachs's rate was 36 percent and it was 62 percent at Morgan Stanley.

At Bank of America, the bonuses equate to 19 percent of the $23 billion in revenue at the investment bank. That ratio would have been 26 percent in 2006, the person briefed on the matter said.

Bank of America is relying on growth in Merrill's capital markets and wealth management units. The bank, which bought Merrill last January, plans to add "hundreds" of trainees this year as it rebuilds its stock brokerage unit, spokeswoman Selena Morris said, declining to provide a specific number. Merrill had 15,006 financial advisers at the end of 2009, down from almost 18,000 at its peak several years ago, she said.

About 80 percent of Merrill's brokerage revenue stem from financial advisers who were trained by the company, with the balance from brokers recruited from peers, Morris said. Merrill Lynch's wealth management unit had revenue of $6.1 billion last year, six times greater than Bank of America's stand-alone brokerage business in 2008.


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Sources: CNN, McClatchy Newspapers, Charlotte Observer, CNBC, WCNC, TPM, Youtube, Google Maps

BOFA Is Repaying TARP Funds...What? No Exec Bonuses?

BofA says it's paying back government loans



Bank of America this evening said it will repay all of its $45 billion in government loans, a move that helps remove the stigma of being a bailout recipient and potentially dials back government scrutiny of its operations.

The repayment to U.S. taxpayers will be made after the completion of a securities offering, the bank said. Shareholders will be asked at a special meeting to approve an increase in the bank's authorized shares as part of the offering. No date was set for the meeting.

The bank indicated that it has approval of the U.S. Treasury and regulators.

“We are pleased that Bank of America is moving ahead with plans to pay the taxpayers back in full,” a Treasury official said in a statement. “As banks replace Treasury investments with private capital, confidence in the financial system increases, taxpayers are made whole, and government's unprecedented involvement in the private sector lessens. While we have more work ahead to improve lending and spur job creation, today's announcement is another step in the right direction. We also welcome Bank of America's commitment to strengthen lending to small business and their on-going efforts to modify mortgages and keep more families in their homes.”

The repayment means Bank of America is freed from executive compensation restrictions imposed by pay czar Ken Feinberg, which have hampered its search for a new top boss. The bank also will not have to clear other executives' compensation with Feinberg. And he will have no say on the final total compensation and pension for Lewis.

Bank of America also said it agreed to increase its equity holdings by $4 billion by selling assets, actions that need to be approved by the Board of Governors of the Federal Reserve and under contract by June 30. If the asset sales are not completed by the end of 2010, the bank said it has agreed it would raise capital through a common stock offering.

Bank of America had signaled its desire to pay back the loans as soon as possible and has been in talks with the government about the process. But payback had not been expected so quickly, especially with the bank searching for a replacement for departing chief executive Ken Lewis.

"We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," Lewis said in a statement. “As America's largest bank, we have a responsibility to make good on the taxpayers' investment, and our record shows that we have been able to fulfill that commitment while continuing to lend. We believe that this is good news, not only for the U.S. taxpayer and our company, but for the country as it is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover.”

Last month, the federal government asked the largest banks that still hold money from the Troubled Asset Relief Program, including Bank of America, to submit their plans for how and when they expect to repay the money. The banks must show they can raise money from private investors – in other words, without government backing – and that even without the TARP money they would still meet stringent capital requirements that the government put in place after stress tests in the spring.

"We are ready and able to repay TARP," bank spokesman Scott Silvestri told the Observer last month. But he said the bank was "waiting for the government to establish the appropriate time."

Some other big banks, including JPMorgan Chase and U.S. Bancorp, have already repaid TARP. That made it even more of a stigma at Bank of America. The government aid only intensified the bank's other big problems, like finding a new CEO, defending itself in multiple investigations, and changing consumer policies to soothe angry customers and lawmakers. That's because the $45 billion from taxpayers gave the public license to claim ownership in the bank and complain about it. It also meant that the government has its hooks in deeper than ever at the bank, evidenced most recently by the pay czar decreeing in October that Lewis shouldn't get paid for 2009.

Bank of America took its first helping of TARP in October 2008, when the Treasury created the program and instructed all of the country's biggest banks to take part. At the time, Lewis said the bank didn't need the money but was happy to participate for the country's good.

But then the bank needed an extra round of TARP money to help with its purchase of Merrill Lynch, which was racking up big losses. Lawmakers kept retroactively adding rules to TARP banks, and the public came to view the money as a "bailout" instead of a "capital purchase program," as the Treasury called it. By February, Lewis was saying he wanted to repay TARP "as soon as humanly possible."



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Did Tim Geithner & Larry Summers Sign Off On BOFA-Merrill Lynch Deal?

(Who do Larry Summers and Tim Geithner really work for? Pres. Obama, American Voters or Wall Street? The Young Turks)




(June 10, 2009: Inside Bank of America's Purchase of Merrill Lynch - Internal E-mails Raise Questions About Bernanke and Paulson Role in BofA-Merrill Deal (Bloomberg News)






Bank of America deal had White House support

Top economic advisers to President Obama signed off on a deal to protect Bank of America from losses incurred by its purchase of failed Wall Street firm Merrill Lynch a month before the new administration took office, according to Bank of America documents.

The documents, describing internal discussions at the bank in late 2008, assert that executives were told that incoming National Economic Council Director Lawrence H. Summers and incoming Treasury Secretary Timothy F. Geithner had endorsed the deal to provide new guarantees to Bank of America.

The acquisition has been a source of protracted debate since earlier this year, when questions arose about whether federal officials exerted an inappropriate amount of pressure on Bank of America to complete the deal. There's also been debate about whether the bank made appropriate disclosures to its shareholders about losses at Merrill Lynch, its negotiations with the government for additional support and compensation plans at Merrill Lynch.

These issues have been the subject of investigations by the House Oversight and Government Reform Committee, the Securities and Exchange Commission and New York's attorney general.

The documents, which were obtained by The Washington Post and are in the hands of committee investigators, are the clearest sign that top Obama officials agreed with the Bush administration and the Federal Reserve's approach.

Bank of America chief executive Kenneth D. Lewis told the company's board that Federal Reserve Chairman Ben Bernanke told him "that Geithner and, in addition, Larry Summers, were both on board with the transaction," according to Dec. 22 talking points prepared for a conference call.

A Dec. 29 e-mail from Joe Price, Bank of America's chief financial officer, to Lewis and others said he had talked to Federal Reserve Governor Kevin Warsh.

He indicated that "we had the strongest assurances" that Bernanke "will survive the administration change" and that then-Treasury secretary Henry M. Paulson Jr. and Geithner, his eventual replacement, "were all aware and in agreement with the representations made to Ken Lewis in the discussions."

Treasury spokesman Andrew Williams said: "After being named as Treasury secretary nominee, Geithner was recused from any issues involving individual banks, including Bank of America. It was perfectly natural and appropriate that the incoming Treasury secretary would be kept apprised of key developments but he was not making decisions for the Government."

White House spokesman Matthew A. Vogel said Monday that "Summers had occasional briefings by Federal Reserve officials during the transition but did not make, review or approve decisions regarding financial institutions during that time."




John Thain Pops Champagne at News of Ken Lewis’s Departure


Ken Lewis was too tuckered out and, frankly, has way too much paperwork to sort out before he can begin properly celebrating his retirement from Bank of America. But one person who didn't waste any time getting the party started was John Thain, the Merrill Lynch executive Lewis ousted soon after BofA took over the firm last year.

Sources told The Post that the former Merrill Lynch boss spent yesterday quietly celebrating the resignation of Bank of America CEO Ken Lewis and hopes Lewis' downfall might help Thain repair his damaged reputation on Wall Street.

By "quietly," we assume they're not referring to the actual noise level as strains of "I Will Survive" and "I'm Still Standing" could be heard reverberating down the corridors of the former New York Stock Exchange head's apartment building for hours after the news was announced.

Folks were cracking the bubbly inside Bank of America, too, it seems, as one "top BofA official" felt loose enough to disclose to the Post that Lewis was

"A combative mother****** with a chip on his shoulder [who] not only looked for a fight but also relished it."

Then again, it's entirely possible he meant that as a compliment.




FBI looking into BofA-Merrill deal

The FBI in Charlotte and the U.S. Justice Department are among the multitude of agencies investigating Bank of America Corp.'s acquisition of Merrill Lynch & Co., a knowledgeable source told the Observer Friday.

The criminal investigation has been under way for about six months, the source said. The probe means an additional layer of scrutiny for the Charlotte-based bank, which bought Merrill on Jan. 1.

Bank of America already faces investigations from the New York attorney general's office, the Securities and Exchange Commission and the N.C. attorney general's office. Those probes have largely focused on the payment of billions in Merrill bonuses before the deal closed and the lack of disclosure of Merrill's ballooning fourth-quarter losses.

The previously disclosed investigations of the bank have appeared to largely involve civil matters that could lead to financial or regulatory penalties against the bank, or fines against some of its leaders.

The FBI involvement opens the possibility of criminal charges, although the scope and possible outcome of the probe remain unclear.

FBI spokeswoman Amy Thoreson and Justice Department spokesman Ian McCaleb said they could neither confirm nor deny the existence of an investigation.

Bank of America spokesman Jim Mahoney declined to confirm whether the FBI or Justice Department were investigating the bank, but he said there are "various government agencies that are continuing to look at the issues associated with Merrill Lynch." He said the agencies extend beyond the SEC and the New York and N.C. attorneys general.

"We continue to believe that no action is imminent, nor that there is any basis for any action," Mahoney said of the investigations.

The bank has provided hundreds of thousands of documents and dozens of hours of executive time in response to the agencies' requests, he said.

In securities filings in February and August, Bank of America said it was cooperating with inquiries from "governmental authorities" in regard to the Merrill merger and bonuses paid to employees for 2008, but it didn't specify agencies other than the SEC.

In testimony to Congress this week, FBI director Robert Mueller said the agency has over 100 agents assigned to more than 580 open corporate fraud investigations. He did not disclose any of the companies. In March, he testified that the agency had more than 566 corporate fraud investigations, including "matters directly related to the current financial crisis."

Meanwhile, the office of N.C. Attorney General Roy Cooper has stepped up its civil investigation by hiring a Loyola University Chicago law professor to help review documents and possible legal claims, according to a contract obtained by the Observer under a public records request. Steven Ramirez, a former SEC enforcement attorney, can make up to $10,640 for work through March, according to the contract.

In February, Cooper's office requested information from Bank of America about Merrill bonuses and its receipt of extra government assistance to complete the Merrill deal. In addition to bonuses, the investigation is beginning to look at how losses were calculated at Merrill in late 2008, according to a person familiar with the investigation.

Earlier this week, U.S. District Judge Jed Rakoff rejected Bank of America's $33 million settlement with the Securities and Exchange Commission over allegations that the bank misled investors about bonuses paid to Merrill employees. Rakoff ordered both parties to prepare for a Feb. 1 trial, although it's unclear how the SEC will proceed.

The office of New York Attorney General Andrew Cuomo is also reportedly preparing to file civil charges against unspecified Bank of America executives in coming weeks. Cuomo's office also is expected to subpoena the Bank of America directors who served on the bank's board at the time of the acquisition, expanding the investigation beyond the bank's management.



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Sources: Washington Post, NY Times, NY Mag, Washington Independent, Bloomberg News, McClatchy Newspapers, Charlotte Observer, The Young Turks, Youtube, Google Maps

Federal Judge Disagrees With BOFA / Merrill Lynch Bonus Settlement...Overturns Prior Ruling

NY Times, Huffington Post----


Judge Rejects Settlement Over Merrill Bonuses

A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.

The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan.

The ruling directed both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1. The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.

The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure.

“It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” the judge wrote.

Bank of America has argued in its filings with the judge that it did nothing wrong in its disclosures.

The judge also criticized the S.E.C., which has been trying to step up the profile of its investigations unit. The judge quoted Oscar Wilde’s “Lady Windermere’s Fan” in the end of his ruling to say that a cynic is someone “who knows the price of everything and the value of nothing.”

The proposed settlement, the judge continued, “suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.”

The case before Judge Rakoff is just one of several investigations into the bank’s deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is also investigating the bank’s disclosures of bonuses and of Merrill’s surprise losses late last year. The House Committee on Government Oversight and Reform is also looking into the merger.

It is not the first time Judge Rakoff has ruffled feathers in the business world. In 2003, for example, he refused to approve what he saw as a low settlement the S.E.C. had negotiated with WorldCom, the phone company that collapsed in an $11 billion accounting fraud.

Rewarding — and punishing — the right parties was at the fore of the judge’s thinking in that case. Shareholders of WorldCom had already lost out. So when the judge forced the S.E.C. to increase the $500 million fine it was levying against WorldCom to $750 million, he also demanded that the money be paid out to the company’s shareholders, rather than to the agency.



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Paulson Admits To Threatening BOFA's Lewis, Forced Him Into Merrill Lynch Deal

Reuters, MSNBC----

WASHINGTON - Former U.S. Treasury Secretary Henry Paulson said that he acted appropriately in warning Bank of America Chief Executive Kenneth Lewis that top executives could be ousted if they walked away from a merger with Merrill Lynch.

While Paulson acknowledged in prepared congressional testimony that he told Lewis the U.S. Federal Reserve could oust the bank's management and board if it walked away from the deal, he said Fed Chairman Ben Bernanke never instructed him to indicate to Lewis any actions the Fed might take.

"It would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment," said Paulson, who is due to testify before a House of Representatives panel on Thursday. A copy of the testimony was made available on Wednesday.

Lawmakers have focused on government actions during the Bank of America merger with Merrill to vent frustration at authorities' handling of the financial crisis that has cost U.S. taxpayers hundreds of billions of dollars in financial bailouts while tipping the economy into a deep recession.

Paulson's appearance follows testimony by Lewis and Bernanke before the same House Oversight and Government Reform panel.

Some lawmakers have slammed what they say was government heavy-handedness in pressuring Bank of America to go through with the deal after escalating losses at Merrill came to light.

Others are unhappy over what they believe was government pressure on Bank of America to withhold information from shareholders about Merrill's losses.

As the Obama administration and Congress debate steps to strengthen financial oversight in the wake of the crisis, many lawmakers have questioned whether the Fed should be given an expanded role given concerns about its role in the deal.

In his prepared testimony, Paulson said he told Lewis on December 21, 2008, that the government felt "very strongly" that if Bank of America sought to back out of the deal, it would show a "colossal lack of judgment."

"Under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America," he said.

Events behind the scenes of the merger burst into public view in April when New York Attorney General Andrew Cuomo said government officials pressured Lewis to go through with the deal or risk losing his job.

Bernanke told the panel last month he had never threatened to fire Bank of America's management or advised the bank to withhold information. He said the Fed had done nothing illegal or unethical.

The bank's chief executive told lawmakers he had been pressured to go through with the transaction but would not characterize the stance of Bernanke or Paulson as improper.

"They strongly advised and they spoke in strong terms but it was with good intentions," Lewis said.



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Congress Allows Release Of E-mails Revealing Ken Lewis' Conversation With Fed Reserve On Merrill Lynch Deal

(Congresswoman Maxine Waters questions Bank CEOs who recieved Taxpayer Bail Out money.)



CNN Money----

Bank of America CEO Ken Lewis heads to Capitol Hill on Thursday, and he's likely to be grilled by lawmakers about the government's role in ensuring that the bank complete its controversial merger with Merrill Lynch.

According to e-mails released Wednesday that pull back the curtain on heated negotiations, Federal Reserve Chairman Ben Bernanke had suggested to another Fed official that "management is gone," if BofA managers tried to flee the deal and later on needed further government assistance.

The revelations come thanks to congressional subpoenas demanding that the Fed disclose e-mails related to Bank of America's purchase of Merrill. CNNMoney.com acquired copies of some of the e-mails circulated among House Republicans late Wednesday.

Lewis is the sole witness of a House Committee on Oversight and Government Reform hearing Thursday about the BofA-Merrill deal titled "Bank of America and Merrill Lynch: How Did a Private Deal Turn into a Federal Bailout?"

He is expected to be asked specifically about whether the Federal Reserve and other government officials pressured Bank of America (BAC, Fortune 500) into completing the merger even after BofA realized how badly Merrill Lynch's fourth-quarter losses would be.

The BofA-Merrill Lynch deal was valued at $50 billion when it was announced in mid-September -- the same day that Lehman Brothers declared bankruptcy. But the deal's worth dropped to $19 billion after Bank of America's shares plunged in following months.

Regulators eventually agreed to give BofA $20 billion in new capital and $118 billion in asset guarantees to cover possible losses tied to the transaction.

Lewis told investigators in the New York Attorney General's office earlier this year that he felt his job was on the line if he didn't go through with the deal. Once Lewis learned last December of Merrill Lynch's deterioration, he told then Treasury Secretary Henry Paulson that BofA was considering backing out of the deal, according to his testimony to investigators.

Paulson said that Lewis and the BofA board would be replaced if they sought to end the merger, which Paulson viewed as integral to the health of the U.S. financial system. Paulson told New York investigators that he threatened Lewis' job at the behest of Fed chief Ben Bernanke.

According to a Dec. 21 e-mail released Wednesday, Bernanke called BofA's threat to pull out of the deal a "bargaining chip," saying "we do not see it as a very likely scenario."

In another e-mail, Federal Reserve Bank of Richmond President Jeffrey Lacker said that Bernanke considered Bank of America's threat to pull out "irrelevant" and "not credible."

Lacker added that Bernanke "also intends to make clear that if they play that card and they need assistance, management is gone," Lacker wrote. BofA is based in Charlotte, N.C., which is in Lacker's district.

The series of e-mails and other documents released Wednesday also called into question the notion that Merrill Lynch's last hope laid with the BofA deal. It appeared that the Fed was willing to provide support to Merrill in order to avoid another collapse like Lehman Brothers.

In one document that listed contingency plans for Merrill if BofA decided to abandon the merger, the Fed said that there were "emergency liquidity provision actions that could be taken to provide some time for the sale/disposition of [Merrill Lynch] businesses and assets."

A Federal Reserve spokeswoman declined to comment on the e-mails.

Bank of America spokesman Lawrence Di Rita said that while he wouldn't comment on internal documents he hasn't seen, he pointed out the unusually tense and crisis-mode environment that overshadowed the negotiations.

"Stepping back, though, it is important to remember the circumstances in which these discussions were taking place: a crisis in financial markets and in the economy generally," Di Rita said. "Serious people were working hard to make decisions to stabilize and improve the situation. In hindsight, it's interesting to look at all of that, but we're looking forward."


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