Cuomo's complaint, filed Thursday in state Supreme Court in Manhattan, charges that BofA hid Merrill's "staggering losses" that had reached $16.2 billion by the time shareholders voted in December 2008 to approve the merger. Following the shareholders' approval, BofA's management then manipulated the federal government by falsely claiming that they would back out of the deal through a clause in the merger agreement unless they received billions of dollars in Troubled Assets Relief Program funds, according to the complaint.
"This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules," Cuomo says in a statement. "In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America's misdeeds."
A BofA spokesman tells GlobeSt.com that the bank is "disappointed" that Cuomo filed the 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 New York AG, but reached the conclusion "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."
Earlier on Thursday, the SEC and BofA announced a settlement whereby BofA would pay $150 million and strengthen its corporate governance and disclosure practices to settle SEC charges that the company failed to properly disclose employee bonuses and financial losses at Merrill before shareholders approved the merger. Under the terms of the proposed settlement—subject to approval by Judge Jed S. Rakoff of US District Court, who is presiding over the SEC's suit against the bank—the $150-million penalty will be distributed to BofA shareholders who were harmed by "the bank's alleged disclosure violations," according to an SEC statement.
The settlement also stipulates that the bank agrees to a series of new oversight provisions. They include: hiring an independent auditor and outside counsel to monitor financial statements and disclosure; a provision guaranteeing that BofA's CEO and CFO personally review all annual and merger proxy statements; and a requirement that directors on the bank's compensation committee follow a "super independence" standard to prevents them from accepting other compensation from the bank. In a statement, BofA said Thursday that it has also settled with the North Carolina attorney general over an investigation related to the Merrill merger.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
