NEW YORK — Ohio Attorney General Richard Cordray said Monday his office could soon seek "billions" from Bank of America Corp. and some of its executives, including Chief Executive Ken Lewis, over the bank's handling of its merger with Merrill Lynch & Co. earlier this year.
Cordray has filed a lawsuit on behalf of five pension funds accusing the bank and four executives, including Bank of America Chief Financial Officer Joe Price and Merrill's former chief executive, John Thain, with concealing widening losses at Merrill ahead of a shareholder vote last December to approve the deal. The lawsuit also names Bank of America's chief accounting officer, Neil Cotty.
Shirley Norton, a Bank of America spokeswoman, said: "We are confident we disclosed all that was required and look forward to presenting our position to the court."
Cordray's announcement is the latest legal challenge to Bank of America and its chief executive over the bank's purchase of Merrill Lynch during the depths of the financial crisis. New York Attorney General Andrew Cuomo, the Securities and Exchange Commission, a U.S. Treasury investigator and lawmakers in Congress have all said they are investigating the conduct of Bank of America executives surrounding the Merrill deal.
In fact, a U.S. judge recently rejected a proposed $33 million settlement between Bank of America and the SEC over $3.6 billion in bonuses the SEC says Bank of America inappropriately allowed to be paid to Merrill employees late last year. The judge said the settlement is too lenient on Bank of America executives.
Bank of America and Merrill agreed to merge last September as the financial crisis raged and the collapse of Wall Street titan Lehman Brothers Holdings Inc. threatened the livelihoods of other securities firms.
In December, before Bank of America shareholders voted to approve the deal, losses at Merrill Lynch widened sharply. Merrill, under then-CEO Thain, nonetheless paid out $3.6 billion in year-end bonuses before the deal closed and Thain has said that Bank of America approved the payments.
In January, after the deal closed, Bank of America disclosed the Merrill losses to shareholders and also disclosed a fresh infusion of support from the U.S. Treasury, which agreed to absorb some of Merrill's future losses. Lewis has said he was pressured by then-Treasury Secretary Henry Paulson to go through with the deal, even as losses at Merrill widened, and to delay disclosing Merrill's deteriorating condition.
Although Merrill's businesses have already contributed profits to Bank of America's earnings this year, the flurry of probes has been a significant distraction for the bank and its embattled CEO. Lewis has made headline-making trips to testify before Congress and to answer questions from Cuomo.
The lawsuit by Cordray's office in Ohio accuses executives at Bank of America and Merrill of breaking securities laws by concealing information from shareholders. Filed on behalf of five pension funds from Ohio, Texas, Sweden and the Netherlands, the litigation marks an attempt by the funds to recoup losses they suffered when Bank of America's share price fell after its purchase of then-crumbling Merrill Lynch.
The pension funds filed a legal document in March detailing hundreds of millions in losses, but have yet to formally declare how much in damages they're seeking. A spokesman for Cordray's office said the estimates of losses in the filing represent a "snapshot in time." He said, "Estimates of losses in these types of cases will change as the case moves forward based on court rulings and other factors."
Cordray made it clear Monday that he will seek damages from the bank as well as executives specifically.
Like Cuomo, Cordray also said Monday he will ask for sworn testimony from executives. That process of interviewing the bank's leaders could bring renewed scrutiny of Thain, who was praised last year for agreeing to sell the company to Bank of America. Lewis then demanded Thain's resignation in January after Lewis grew angry about the way Thain handled the unexpectedly large fourth-quarter losses at Merrill.