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.

Federal judge cuts through the bailout rhetoric in New York courtroom

Think it's been awhile since there's been any straight talk about last year's $700 billion taxpayer rescue of the nation's financial system? Well, the wait is over. A federal judge in New York has issued a scathing ruling rejecting a proposed $33 million settlement of a lawsuit arising out of Bank of America's regulator-arranged takeover of the failing Merrill Lynch brokerage house, according to the New York Times. The ruling by U.S. Judge Jed Rakoff accuses the government's chief regulator, the U.S. Securities and Exchange Commission, of being too lenient and blames BofA officials for failing to tell their shareholders that Merrill Lynch had paid as much as $4 billion in bonuses to its employees just before the merger. The lawsuit was filed by the SEC against BofA, but the judge said the SEC and the bank came up with the settlement to absolve themselves of any further responsibility. “The S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger,” the judge said, according to the Times, and “the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.” The judge ordered the parties to trial in February, pending what is likely to be numerous appeals of the ruling. The decision came on the same day that President Barack Obama told Wall Street banking executives in New York that "we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis.” Obama has proposed an overhaul of the federal government's financial regulatory system. The Times said the BofA case was one of several active investigations of the $50 billion merger, including one by New York State Attorney General Andrew Cuomo that is expected to result in a criminal complaint later this month. An investigation by the House Committee on Government Oversight and Reform also is underway, the Times said.