Bank Of America CEO Subpoenaed Over Merrill Deal

Bank of America CEO Ken Lewis received a subpoena from New York state officials who want to know about bonuses paid to Merrill Lynch employees. The investigation focuses on whether the bank withheld information from investors during its acquisition of Merrill.

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MICHELE NORRIS, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

The attorney general of New York, Andrew Cuomo, has subpoenaed the CEO of the nation's largest bank, Ken Lewis of Bank of America. Cuomo wants answers about the bank's decision to award $3.6 billion in bonuses to employees at Merrill Lynch. That was right before Merrill was acquired by Bank of America. Two other Bank of America executives were also subpoenaed.

And NPR's Jim Zarroli joins me now.

Jim, these bonuses were handed out by Merrill Lynch executives to Merrill employees, so why does the attorney general of New York want to talk to Ken Lewis?

JIM ZARROLI: Well, they want to find out - he wants to find out what he knew. Attorney General Cuomo's office has said that right before this merger went through on January 1st, Merrill Lynch approved bonuses for executives, and this included a total of $121 million for the top four executives.

And Cuomo says Merrill did this secretly and prematurely; that the merger was about to go through, the fourth quarter earnings statement was coming out and it would show a huge loss for Merrill. So Merrill rushed to get these bonuses paid out before anybody could stop them.

Now the question is how much did Bank of America, which was acquiring Merrill, and Ken Lewis know about what was going on.

NORRIS: So there's a question of timing. Does Bank of America acknowledge that it knew the bonuses were being awarded early?

ZARROLI: Well, first, they wouldn't - Bank of America would not comment at all today. Their basic position has been, you know, we knew about it. We didn't necessarily like it very much but we couldn't do anything about it, because when this went on, the merger hadn't gone through yet.

Here was Ken Lewis talking about the issue at a House hearing this month.

KEN LEWIS: I will remind you, though, that they were a public company until the first of this year. They had a separate board, separate compensation committee, and we did have - we had no authority to tell them what to do; just urge them what to do.

ZARROLI: Now, Lewis was under oath when he said that. One of the questions that law enforcement officials are looking into is, you know, whether what he said accurately reflects his role in the decision to give out these bonuses.

I talked to a law enforcement official today who said that the decision to speed up the bonus payments was actually written into the merger agreement between Bank of America and Merrill, in a section that has not been - was not made public. So, and not only did Ken Lewis know about this acceleration of payments ahead of time, he presumably had some opportunity to provide input into the decision.

So, you know, again, what kind of role did he really play? That's one of the questions that law enforcement officials are trying to answer here.

NORRIS: And if it turns out that Ken Lewis' role was bigger than he acknowledged, is that illegal?

ZARROLI: Well, the person I talked to today says, you know, this kind of decision to accelerate bonus payments is something that companies can do, they're within their rights to do it. That's not the problem. It's not the fact that the acceleration happened, the question is, you know, was this done - well, one of the questions is, was this done in a way to keep it from the board and the shareholders at Bank of America.

You know, let's say executives knew that this terrible earnings report was coming out, and they knew that when it came out a lot of people would be angry about handing out bonus money, so they rushed it through before that could happen. So if Merrill was doing this and Bank of America knew about it, that's one thing that would elevate this into a different kind of legal issue.

The other thing that puts this in a different sphere is that Bank of America was getting money from the taxpayer-funded bailout program, the TARP. And there are federal laws that govern how federal money is spent. And this allows the government to do a callback, to take back some of the money that they've passed out.

So, if something was illegal - was done and Bank of America played a part in it, it could cost them some money. But, of course, at this point the investigation is still in an early stage.

NORRIS: That's NPR's Jim Zarroli. Thanks so much, Jim.

ZARROLI: You're welcome.

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