The former top executive of Bank of
America (the Bank) was a named party in a settlement between the bank and the
State of New York announced on Wednesday.
Kenneth D. Lewis, who was essentially forced out of the bank's
chairmanship and then from his position as CEO early in the financial crisis,
has been fined and barred from serving as
an officer or director of a public company for three years as part of a $25 million agreement relating to
the Bank's 2008 merger with Merrill Lynch & Company.
The settlement was announced by the
office of Attorney General (AG) Eric T. Schneiderman which alleged that the
Bank, Lewis, and the Bank's former chief financial officer Joe Price, failed to
disclose specific information about mounting losses at Merrill Lynch as the
bank was attempting to merge with that historic Wall Street Firm. According to the settlement, the executives were
aware that Merrill's losses were forecast at more than $9 billion but failed to
disclose that information to shareholders prior to a merger vote. It is
also alleged that the two executives misrepresented the impact that the merger would
have on the Bank's future earnings.
Schneiderman said the barring of Lewis from serving as an officer or
director of a public company for three years, as well as the payment of $10
million to the State of New York, represents one of the first successful
attempts by law enforcement to hold accountable a CEO or individual at a major
institution since the financial crisis. The Bank will pay Lewis' portion of the
fine. The AG said he also intends to
file a summary judgment motion against Price on April 4.
"Since I took office, I've acted on the belief that no one, no matter how
rich or powerful, should escape accountability for their actions - especially
ones that caused such damage to shareholders," Schneiderman said. "Today's
settlement demonstrates a major victory in our continued commitment to applying
the law equally to individuals, as well as corporations. I would hope this
closes one chapter of our ongoing efforts to ensure the frauds that occurred in
and around the financial crisis are not forgotten."
The settlement also requires the Bank continue numerous corporate governance
reforms, especially those relating to public filings and acquisition-related
activities. The Bank will pay the State $15 million to
reimburse the costs incurred during the course of the AG's investigation and
subsequent litigation of this matter.
Despite initially concealing the forecast losses from investors as
immaterial, it is alleged that the Bank immediately sought massive financial
assistance from the federal government, claiming that there had been a
"material adverse change" in Merrill's financial condition over the previous
three months, subsequently manipulating the Treasury into providing an extra
$20 billion bailout by threatening to back out of the merger without the money. The Bank continued to conceal Merrill's
forecast losses until mid-January 2009, when disclosure of Merrill's
multibillion dollar fourth quarter losses led to a $50 billion sell-off in the
shares of Bank of America.
The Office of the Attorney General's investigation and prosecution of the
Bank and its top executives directly contributed to the settlement last year of
securities class action litigation arising out of the same facts, with
investors and their counsel receiving $2.425 billion in damages.
Lewis was with Bank of America from 2001 to 2009 and is largely credited
with building it into one of the nation's big five banks. In the run-up to the 2008 financial meltdown
the bank also acquired major mortgage lender Countrywide which subsequently
cost it billions in loan losses and has resulted in an ongoing marathon of
legal problems. The merger with Merrill
Lynch was completed on January 1, 2009 and by April Lewis had been ousted as
chairman. He retired from the bank at
the end of 2009.