Thursday, February 4, 2010

New York State steps into Bank of America bailout as feds settle

At least somebody in government still thinks it's their job to look out for the beleaguered U.S. taxpayer. We're speaking, of course, of New York Attorney General Andrew Cuomo, who has sued Bank of America for securities fraud over its 2008 merger with Merrill Lynch on the same day that federal authorities who pumped billions of taxpayer dollars into the bank settled their complaints for insignificant amounts of cash. In a lawsuit filed Feb. 5, Cuomo accused the bank and its two top officers of securities fraud in connection with the merger, claiming they misrepresented the financial condition of Merrill Lynch to shareholders as they were voting on whether to approve the deal, according to the New York Times. In the suit, Cuomo said the bank failed to reveal $16 billion in losses to shareholders but told federal officials that the losses necessitated an additional $20 billion from the Troubled Asset Relief Program, set up by the U.S. government to help financial institutions weather the global financial crisis. “They understated the problems, the losses to the shareholders, they overstated their ability to terminate the arrangement to the federal government to secure $20 billion in TARP money, and that is just a fraud,” Cuomo told the Times. “The Bank of America and its officials defrauded the government and taxpayers at a very precarious time.” But the U.S. Securities and Exchange Commission allowed the bank to escape federal charges by paying $150 million in fines, despite Merrill Lynch payments of billions of dollars in bonuses to its executives just before the merger. Bank officials said the fact that the government chose to settle showed that Cuomo's fraud allegations against it and against Chief Executive Officer Kenneth Lewis and Chief Financial Officer Joe Price were not true. “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,” Bob Stickler said in an e-mail to the Times. “The SEC had access to the same evidence as the N.Y.A.G. and concluded that there was no basis to enter either a charge of fraud or to charge individuals." Lewis and Price have since left their posts, the Times said. The SEC settlement still must be approved by a federal judge who already turned down a proposed $33 million settlement of the case. But this time, the bank agreed to have an independent auditor review its disclosures and to give shareholders the right to vote on executive pay, the Times said.

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