Published: February 4, 2010

Bank of America settled a regulatory complaint with the Securities and Exchange Commission on Thursday even as New York’s attorney general accused the bank, its former chief executive and chief financial officer of securities fraud.

In a lawsuit filed on Thursday, the attorney general, Andrew M. Cuomo, asserted the bank and the two officers — Kenneth D. Lewis, the chief executive, and Joe L. Price, the chief financial officer — misled shareholders and the government about the merger with Merrill Lynch.

Both executives have stepped down from their posts, though Mr. Price remains at the bank.

The attorney general had been in settlement talks with the bank since November, but the talks apparently fell through.

As Mr. Cuomo was announcing his lawsuit, the S.E.C. released details of a settlement with Bank of America on two separate cases. The bank agreed to pay a $150 million fine and strengthen its corporate governance rules.

A Bank of America spokesman, Bob Stickler, said the bank was disappointed by Mr. Cuomo’s charges.

“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,” Mr. Stickler said in an e-mail message. “The S.E.C. 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. The company and these executives will vigorously defend ourselves.”

Lawyers for Mr. Price and Mr. Lewis issued statements saying the case is without merit. “Mr. Lewis has been unfairly vilified by the political search for accountability for the financial meltdown,” said Mary Jo White, a lawyer at Debevoise & Plimpton who represents Mr. Lewis.

The attorney general’s accusations, detailed in a 90-page complaint, focus on two decisions that bank executives made in December 2008, as Merrill Lynch suffered growing losses. The complaint was filed under the Martin Act, a New York State law that gives the attorney general broad latitude to pursue financial wrongdoing.

“Throughout this episode, the conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris and a palpable sense that the normal rules of fair play did not apply to them,” Mr. Cuomo said. “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

In his complaint, Mr. Cuomo said that the bank first chose not to disclose the losses involving Merrill Lynch, which topped $16 billion, to its shareholders who were voting to approve the deal. Then, the bank told federal officials that those same losses had persuaded bank executives to consider backing out of the deal, unless the government provided a second bailout.

The Federal Reserve and the Treasury Department did just that in January 2009, providing another $20 billion for the combined company as well as an insurance plan for troubled assets.

“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,” Mr. Cuomo said. “The Bank of America and its officials defrauded the government and taxpayers at a very precarious time.”

Mr. Cuomo was joined on the call by Neil Barofsky, the special inspector general of the Troubled Asset Relief Program, the federal banking bailout.

The S.E.C. settlement is subject to approval by the federal judge presiding over the case, Jed S. Rakoff, who rejected an earlier settlement. Judge Rakoff questioned the size of the previous settlement — $33 million — as well as the agency’s decision not to charge individual executives.

The S.E.C. was scheduled to go to trial on March 1 against the bank for its first case, which focused on billions of dollars in bonuses that the bank allowed Merrill to pay on the eve of the merger.

The S.E.C. brought a second case against the bank last month that focused on Merrill’s losses. The settlement announced on Thursday encompasses both cases. The bank agreed it would retain an independent auditor to review the bank’s disclosure practices, add more rules separating the board’s compensation committee from the committee and give shareholders the right to vote whether to approve executive pay.

The bank also settled with North Carolina’s attorney general, Roy Cooper, agreeing to some reforms and also to a payment of $1 million to the North Carolina Department of Justice.


The People of the State of New York v. Bank of America, Kenneth D. Lewis & Joseph L. Price
[scribd id=26385165 key=key-ybrqof5pz7l9szc4i7u]