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New York sues Bank of America over Merrill Lynch merger

Bank of America and then-CEO Ken Lewis misled investors about the risks of acquiring Merrill Lynch, alleges a civil suit filed Thursday by New York's attorney general. The bank and the SEC, meanwhile, offer a $150 million settlement for investors over the Merrill Lynch episode.

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In addition, Bank of America agreed to a range of seven other actions ranging from hiring an independent auditor to attest to the bank’s disclosure controls and procedures, to providing shareholders with an annual “say on pay” regarding compensation for executives. The bank has agreed to abide by the requirements for three years.

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If Rakoff rejects the settlement, the case is scheduled for trial on March 1.

New York bares its teeth

No matter what happens with Rakoff, the bank will also have to deal with New York Attorney General Andrew Cuomo. Mr. Cuomo is joined in the suit, announced Thursday, by Neil Barofsky, special inspector general for the federal Troubled Asset Relief Program (TARP).

Mr. Cohen notes that the bank, in its settlement with the SEC, maintains it did nothing wrong. “It will be interesting to see if Rakoff agrees with this,” he says. “I think he will say, 'You did wrong and you must admit it,' and that runs right into Cuomo’s suit.”

According to Cuomo's complaint, Bank of America concealed the losses at Merrill Lynch from shareholders, so that they would approve the merger. His civil suit alleges that the bank also failed to inform shareholders it was allowing Merrill Lynch, having its worst year ever, to pay $3.57 billion in employee bonuses. Then, after the shareholders approved the takeover, Cuomo alleges, CEO Lewis “misled” federal regulators by telling them the bank could not complete the merger without government help.

After Lewis appealed to regulators, the bank received $20 billion in TARP funds. It has since repaid that money.

“This merger is a classic example of how the actions of our nation’s largest financial institutions led to the near-collapse of our financial system,” said Cuomo in a statement. He accused Bank of America of “arrogance” and of committing “enormous fraud.”

Bank of America did not return a call from the Monitor. A spokesman told the Associated Press that the bank believes the charges filed by the state of New York to be "totally without merit."

Noted bank spokesman Robert Stickler, "The SEC had access to the same evidence as the [New York attorney general] and concluded that there was no basis to enter either a charge of fraud or to charge individuals.”

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