Bank of America Corp. had hardly settled a major lawsuit related its takeover of Merrill Lynch & Co. when it was hit with a new one Thursday.
New York Attorney General Andrew Cuomo sued the company, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price for defrauding investors and the government when buying Merrill. The suit said they did not disclose about $16 billion of losses Merrill had incurred before it was bought by B of A in an effort to get the merger approved. Afterward, Lewis demanded government bailout funds, Cuomo said.
"The conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris and a palpable sense that the normal rules of fair play did not apply to them," the lawsuit said. "Bank of America's management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth."
Cuomo's press conference began at almost the same moment the Securities and Exchange Commission announced B of A had agreed to pay $150 million to settle a related lawsuit.
The proposed fine would be distributed to harmed shareholders, the SEC said.
B of A is required to take seven steps in the next three years to bolster corporate governance and internal controls.
The $150 million SEC settlement still has to be approved by U.S. District Judge Jed Rakoff. Last year, Judge Rakoff called the SEC's initial settlement, which focused on the bank's bonus disclosures, neither fair nor reasonable. Last month, the SEC expanded its claims against the bank, accusing it of failing to disclose Merrill's mounting losses before holding a shareholder vote on the acquisition.
The conduct of Brian Moynihan, B of A's current chief executive, is not under investigation, said David Markowitz, Cuomo's special deputy attorney general for investor protection. Moynihan became general counsel in the middle of events, he said.
"We find it regrettable and are disappointed that [Cuomo] has chosen to file these charges, which we believe are totally without merit," B of A said in a statement. "In fact, the SEC had access to the same evidence as [Cuomo] and concluded that there was no basis to enter either a charge of fraud or to charge individuals."
Lawyers for Lewis and Price denied wrongdoing.
Cuomo said B of A scheduled a shareholder vote to approve its plan to buy Merrill on Dec. 5, 2008. By that date, Merrill incurred losses of more than $16 billion, Cuomo said. B of A's management, including Lewis and Price, knew of the losses and knew that more were coming, he said.
After the merger was approved, Lewis told federal regulators that B of A could not complete the deal without a taxpayer bailout because of accelerated losses from Merrill, Cuomo said. However, between the time the shareholders approved the deal and the time Lewis sought the bailout, Merrill's losses only increased by $1.4 billion, Cuomo said.
The suit, filed in New York state Supreme Court in Manhattan, claims B of A received more than $20 billion in taxpayer aid as a result of its misleading efforts. Cuomo also claims management failed to disclose to shareholders that it was allowing Merrill to pay $3.57 billion in bonuses. Nor did B of A's management tell the bank's lawyers about the extent of Merrill's losses before the shareholder vote.