Ken Lewis, B of A's Former CEO, Sued For Fraud By NY

Kenneth D. Lewis, former Bank of America chief executive, was sued Thursday in a civil lawsuit for fraud by New York Attorney General Andrew Cuomo who charged that bank officials knowingly kept shareholders in the dark about huge losses at Merrill Lynch in order to smooth the way for the bank's 2008 acquisition of the large stock broker.

Besides Lewis, former B of A chief financial officer, Joseph Price, was also sued by Cuomo and Neil Barofsky, the special inspector general of the Troubled Asset Relief Program or TARP.

From the press release announcing the lawsuit:

According to the lawsuit, Bank of America's management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger. Once the deal was approved, Bank of America's management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds.

"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."

Here's the lawsuit.

B of A issued this statement in response to Cuomo:

We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit. The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations. In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves.

It's conceivable that Lewis, Price and B of A could be helped by the terms of the bank's settlement with the Securities and Exchange Commission and North Carolina's attorney general.

 

According to a B of A press release:

After conducting a full investigation in connection with the actions settled today, the SEC staff has determined that no one acted with any intent to mislead and that charges against individuals for their roles in connection with proxy disclosure are not appropriate.

Under the terms of the settlements, Bank of America agreed to pay $1 in disgorgement and an additional $150 million as a civil penalty to be distributed to shareholders as part of the SEC's Fair Fund program at a later date in accordance with further order of the court. A payment of $1 million will also be made to the NC AG for its consumer protection purposes. The payment to the NC AG is not a penalty or a fine.