New York Sues Bank Of America New York state filed civil charges against Bank of America and former CEO Ken Lewis, alleging the bank misled investors about Merrill Lynch before it bought the Wall Street bank in early 2009. A spokesman for the bank said the charges lacked merit.
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New York Sues Bank Of America

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New York Sues Bank Of America

New York Sues Bank Of America

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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From NPR News, its ALL THINGS CONSIDERED. Im Robert Siegel.

The former chief executive of Bank of America, Ken Lewis, was charged with fraud today. At issue is his role in the banks acquisition of Merrill Lynch, a deal announced in September 2008, as the financial crisis was peaking. The New York state attorney generals office says Lewis and another top bank official lied to shareholders and to government officials about the extent of Merrills losses. Meanwhile, the Securities and Exchange Commission said it has reached a $150 million settlement with the company. And to walk us through all this is NPRs Jim Zarroli. Hi, Jim.

JIM ZARROLI: Hi, Robert.

SIEGEL: And first, remind us why this merger took place. What made it so controversial?

ZARROLI: Well, Merrill Lynch was one of the big players on Wall Street that had big subprime losses. And it was really sort of teetering in September 2008. So, the federal government engineered this merger with Bank of America. The deal went through in December. And once it did, two things came out that turned out to be very controversial. First, Merrill had promised to pay really big bonuses to its employees and Bank of America had gone along with that.

And then the other thing that happened was Bank of America came to the government and said, you know, we found out Merrills losses were much worse than we thought, so we need more money to go through with the deal. And the federal government gave Bank of America another $20 billion on top of the $10 billion that it had already given them.

SIEGEL: And what was Ken Lewis role in the merger and how does he explain what he did?

ZARROLI: Well, he oversaw the merger. He has said in the past that he didnt really understand how big Merrills losses were when the deal went through, when shareholders approved it. And then when he learned it, he went to Treasury Secretary Henry Paulson and said: I cant go through with this. And he says they basically strong-armed him into the deal. But the complaint file today says this was kind of a big rouse on Lewis part - that it was sort of an attempt to squeeze more money out of the federal government.

SIEGEL: Now, youve read the complaint against Bank of America, Lewis and the other, what sort of evidence does Attorney General Andrew Cuomo present?

ZARROLI: Well, basically Cuomo says, number one, Merrill Lynch was very open from the beginning about the losses it was suffering, you know, was regularly adding them up. And Bank of America had employees embedded in the company before the merger was approved. So they had access to the information.

So, Lewis and his chief financial officer, Joe Price, who's also charged in this complaint, should've known what kind of trouble Merrill was in. And then the complaint also says several people did see what was happening including the auditors and its general counsel. They went to Price, they told him, you know, you better come clean to shareholders about these losses and that wasnt done. And, in fact, the general counsel, whose name is Timothy Mayopoulos, says he was misled about the losses. And when he went to ask about them, he went to Price after the shareholder vote, he was fired.

SIEGEL: And what do Lewis and Bank of America say about the charges?

ZARROLI: Well, Lewis, he retired at the beginning of this year. He issued a statement saying he's been unfairly vilified because of the political response to the financial meltdown. The bank says its disappointed by the charges. Spokesman says the Securities and Exchange Commission had access to the same evidence that Cuomos office did and it didnt charge anyone with fraud.

Now, the SEC has pursued charges against the bank over the bonus issue. It reached a $33 billion settlement with Bank of America last year. But that was tossed out by a judge because he said it was too low. Today the SEC came back and said it had reached a new settlement of $150 million, which has to be approved by the judge. But it is true, the SEC is not going after Lewis or Price themselves.

SIEGEL: Jim, on a completely different matter, a bad day on Wall Street today.

ZARROLI: You know, probably several big reasons for this. Weak unemployment numbers today, also some concern about the levels of debt thats been racked up in some countries, especially Greece and some countries in Europe.

SIEGEL: Okay, thank you, Jim. That NPRs Jim Zarroli.

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