New York state Thursday sued Bank of America and two former top executives, alleging fraud and deception in the banking giant’s Merrill Lynch takeover in order to get billions in bailout funds.
The news came as the top US stock market regulator, the Securities and Exchange Commission (SEC), announced a new agreement to settle its investigation calling for Bank of America to pay 150 million dollars.
Andrew Cuomo, the New York state attorney general, announced the lawsuit against the bank, former chief executive Kenneth Lewis and former chief financial officer Joseph Price “for duping shareholders and the federal government in order to complete a merger with Merrill Lynch.”
Cuomo said Bank of America, through its top management, “engaged in a concerted effort to deceive shareholders and American taxpayers at large. This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules.”
“In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds,” Cuomo added.
Bank of America, the biggest US bank by assets, Lewis and Price lashed out at the charges.
Bank of America said it was “disappointed” by the charges, saying they were “totally without merit.”
“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,” the bank said in a statement.
“The company and these executives will vigorously defend ourselves,” it added.
According to the lawsuit, “Bank of America’s management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger.
“Once the deal was approved, Bank of America’s management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds.”
The suit was endorsed by Neil Barofsky, who became inspector general of the Treasury’s Troubled Asset Relief Program after TARP bailed out Bank of America and backed the Merrill takeover.
Barofsky, charged with overseeing that TARP funds are properly used and who participated in the New York probe, said the lawsuit was “a crucial step toward such accountability.”
The TARP continues to support the parallel case brought by the SEC, he said, noting the proposed settlement announced Thursday “will provide for a substantial cash payment and important governance reforms that will bring about change that is so obviously needed at Bank of America.”
A lawyer representing Lewis said the New York lawsuit “was a badly misguided decision without support in the facts or the law” and that the ex-CEO was being used as political scapegoat for the financial crisis.
“Mr. Lewis has been unfairly vilified by the political search for accountability for the financial meltdown,” attorney Mary Jo White said in a statement.
Price, speaking through an attorney, also denied the charges and noted that Cuomo’s conclusions were “contrary” to those of the SEC, “based on the same evidence.”
The SEC said that Bank of America had agreed to pay 150 million dollars to settle charges that it had misled its shareholders about the Merrill takeover, almost five times more than a previous 33-million-dollar proposal rejected by a court last year.
Federal Judge Jed Rakoff last September rejected a first attempt at a proposed settlement, saying the plan unfairly penalized shareholders at Bank of America.
He wrote at the time that the settlement would allow “the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against management go away.”