Cuomo's Revelation: Bernanke and Paulson Strongarmed BofA's Purchase of Merrill

Below is a letter sent yesterday by NY Attorney General Andrew Cuomo that outlines how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced BofA’s (BAC) acquisition of Merrill. Highlights:

• BofA knew Merrill’s losses were far more substantial than believed prior to closing the merger. It wanted to invoke a “material adverse change,” or MAC, clause in order to back out of the deal.
• Paulson threatened to fire Lewis and BofA’s whole board if they backed out of the merger.
• Paulson confirmed that he made the threat and said it came at the request of Ben Bernanke.
• Ken Lewis argues that, over the “short-term,” he knew closing the merger would expose BofA shareholders to substantial losses lurking on Merrill’s balance sheet. In the long-term it’s still a good fit because Merrill has assets that fill strategic holes.

But if BofA wanted to fill strategic holes, why not follow the Barclays/Lehman model (BCS), letting Merrill fall into liquidation and feasting on its carcass? True, Bernanke/Paulson clearly didn’t want to let that happen. But Lewis was stupid enough to sign a merger agreement with Merrill in September. This after the disastrous acquisition of Countrywide in early ‘08. It’s amazing this man and his board still have their jobs.

Expect lots of shareholder litigation over this.

(ht Carey H, via ZeroHedge)

Cuomo Letter to Congress Regarding Bernanke/Paulson Interference with BofA/Merrill Deal

Comments

[ArkansasAngie:]

Let's see ... the definition on findlaw.com for:

"Aiding and Abetting/Accessory .. is
——————————————————————...
A criminal charge of aiding and abetting or accessory can usually be brought against anyone who helps in the commission of a crime, though legal distinctions vary by state. A person charged with aiding and abetting or accessory is usually not present when the crime itself is committed, but he or she has knowledge of the crime before or after the fact, and may assist in its commission through advice, actions, or financial support. Depending on the degree of involvement, the offender’s participation in the crime may rise to the level of conspiracy.

For example, Andy draws a floor plan of a bank, knowing of Dan’s intention to rob it. After Dan commits the robbery, Alice agrees to let him store the stolen money at her house. Both Andy and Alice can be charged with aiding and abetting, or acting as accessories to the robbery.

Read more: Accomplices, Accessories, Aiders, and Abettors"

The ends do not justify the means.

A membership in the FEDury does not give you a "get out of jail free card."

Sorry to tell ya'll but this isn't a game.

Apr 24 08:04 AM

[dcb:]

I simply can’t believe that in the eight days in between Merrill’s December 8 board meeting and the December 16 call between Lewis and Paulson and Bernanke, that Merrill’s estimate of its fourth quarter loss quadrupled. (And even if it did, Lewis wasn’t so troubled by the loss, or the manner of its disclosure to BofA, that he was ready to dump Thain when he first learned if it.) What I do believe is Ken Lewis decided to play chicken with the Paulson and Bernanke. Lewis knew that, given the financial markets’ instability, the feds wouldn’t let BofA walk away from the deal. So he and his financial “experts” trumped up the expected losses in order to wheedle guarantees from the federal government.

I took the above from someone. We must remember that the fourth quarter loss doubled because Lewis placed his man at Merrill and decided how to value the toxic assets. the merril person resigned instead of signing off on the valuations. Therefore, Lewis cooked the books and then went to blackmail the gov't. with the cooked books. I am sorry I can't find names anywhere

Apr 24 08:51 AM

[History Buf...:]

There's plenty of blame to go around in this sorry mess, that's for sure.

Apr 24 10:03 AM

[ArkansasAngie:]

How about we pass out more than blame?

Apr 24 10:16 AM

[asaf123:]

It won't be long before Andrew Cuomo becomes "ensnared" in some sort of scandal.

Recall, Eliot Spitzer was getting very close to unraveling the Goldman-AIG-Treasury-Fed conspiracy when another Govt. Agency "leaked" some wiretaps of his conversations with alleged prostitutes.

Apr 24 10:54 AM

[elated7:]

It is Paulson at the CORE of financial meltdown. As a CEO of Goldman and also as Treasury secretary. he has done more harm to the economy than anyone in history of mankind. He should be prosecuted.

Apr 24 11:39 AM

[Buckoux:]

Bank of America shareholders may have a cause for action against the federal government. The threats made to Lewis by Paulson and Bernanke, if proved, are extortion.

Apr 24 12:26 PM

[SW Richmond:]

Lewis and his board had a duty to disclose which they failed to perform. Prosecute.

Paulson and Bernanke strongarmed Lewis and his board and then conspired to not disclose that fact, also conspiring to not disclose Merrill's condition. Prosecute.

Apr 24 01:25 PM

[MDR:]

The blame clearly lies with Lewis and his board. They are incompetent buffoons.

Apr 24 01:45 PM

[korba:]

Everybody here agrees that something wrong has been done. However, is it enough for us to write our comments on SA? What else we can do to ensure that justice is served? I am concerned that this will be a topic of discussion for few days and just die down. Let's have a discussion about what we all can do to show that common man had enough of this favoritism and corruption at high level. (1) Can a knowledgeable person here file a case against Lewis/Ben/Paulson (2) can we do anything to support Cuomo and ensure that his case does not fade into oblivion?

Apr 24 02:20 PM

[MDR:]

So Lewis didn't want to make the acquisition--he was forced into it right? Why did he keep touting it as a great deal when they reported earnings? He's trying to make himself look good, as he did when he fired Thain and tried to say that Thain and his management team lied to him about Merill's losses. But now he's saying he know of the losses but was forced to acquire anyways? His story is full of holes, someone slap this idiot.

Apr 24 02:29 PM

[Speedspirit:]

Another good cause to put forward the bill on the floor to introduce a new Pecora commision. Write your congressman or dont complain later.

Apr 24 02:34 PM

[Hillsfar:]

Korba: "Everybody here agrees that something wrong has been done. However, is it enough for us to write our comments on SA? What else we can do to ensure that justice is served? I am concerned that this will be a topic of discussion for few days and just die down."

It's like how the Republicans now don't want anyone to go after the people who authorized torture in the name of the United States. Anyone who doesn't think it's torture is welcome to be waterboarded 183 times in one month.

Apr 24 02:50 PM

[KCN:]

Merril Lynch was the best crooked company around. Honestly, nobody wants to see Merril's books...

BofA was loan guranteed so that it can buy off Merril. BofA thought this thing is coming nearly free - greedy buggers! Feds and Treasury told them a deal is a deal, if BofA broke it, they will break BofA salvaging Merril at BofA's expense. I think it was Catch 22 all around. It was easy to sacrifice BofA than the Western financial system. Lewis did not figure smart, and is goosed.

BofA, Wachovia, BB&T allnon-NY banks and even WFC were getting too big affecting the NY crowd, may be?

Apr 24 04:13 PM

[Nathaniel C:]

We need to issue arrest warrants for Bernanke and Paulson. These criminals abused their authority.

Apr 24 04:13 PM

[BerkeleyBob:]

Very little attention paid by any of the parties to shareholder interest. Failure to disclose is classic territory for SEC and shareholder suits, and I don't know if "The government made me do it" would exculpate Lewis. More reason, if any is needed, to avoid investment in financials or even short the damn things...

Apr 24 05:05 PM

[Erick Tippett:]

This system is pretty messy from top to bottom and will no doubt
continue for years to come compliments of a brainwashed, 'either
or minded' american public. Apparently third party candidates, many of whom have clearly explained how alternatives to the 'republicrat' system could offer some possible improvements, are not worthy of serious consideration by the 'american majority'.

When total societal collapse occurs ,as some historians are
projecting, and disgruntled law enforcement personnel and
organized crime have merged, as some analyst are projecting, you'll wake up one morning to the good graces of a facist take-
over and wonder why it happened.

I won't be the least bit surprised!

EDT
Chicago, Illinois

Apr 24 06:48 PM

[Moon Kil Woong:]

I can't say it better so I cut and pasted from

optionarmageddon.ml-im.../

REPORTER: If Henry Paulson and Ben Bernanke really told the CEO of Bank of America to keep quiet about losses at Merrill Lynch, they were probably breaking the law. That’s according to Lynn Turner, former chief accountant at the SEC.

LYNN TURNER: If these allegations are proven true, both Bernanke and Paulson should be prosecuted by the SEC to the fullest extent of the
law.

Apr 24 06:52 PM

[Buy and Hol...:]

I understand the need to keep Merrill from going poof like Lehman did but man, that was some highly shady stuff Paulson and Bernanke pulled. If it's not illegal, it should be.

But, just like torture prosecutions, it will probably be swept under the rug. Nothing to see here, please disperse. Oh, and go to the mall and start spending again, please.

Apr 24 07:51 PM

[ArkansasAngie:]

I wrote the Attorney General of Arkansas, Dustin McDaniel. I suggested that Arkansas' Bank of America stockholders need his help. I suggest you contact your state's AG as well.

When free markets are manipulated they are not free. When the government manipulates the truth they are neither Democratic nor Republican, they are fascists.

Apr 25 07:32 AM

[cayman a-d:]

Sounds like Bernanke has some explaining to do. To many he has been our knight in shining armor appearing to sidestep disaster at every turn but if these allegations come out to be true he could be ruined. As some above have stated he is guilty of extortion which is a serious offense in this country. You know he'll say we couldn't let it fail and he was acting in the best interest of everyone in the world. Also that this would have caused a shock to the already fragile financial system that potentially could have caused unimaginable economic disaster. Which in his defense he may be right I am no expert.

Last point. Sadly, whenever the Fed becomes an active market participant by becoming "direct" stakeholders in our institutions these events are almost unavoidable because independence is lost. You can just imagine Bernanke saying to Lewis you "remember who lent you the 20B last quarter? what happens when you need more?". I am sure it was something along those lines. Hahaa, its all a bunch of shenanigans. Hey but nothing is perfect. It'll be interesting to see where this goes. I am surprised it hasnt caught more headlines.

Apr 25 09:25 PM

[ubuy2w:]

I am sick and tired of Monday morning quarterbacks calling for Lewis's head. The facts are IF BAC had walked the mkt would have melted down big time, I am unsure if a govt. backed bailout of Merrill was politically possible and a Lehman like liquidation would have caused MS and GS to fail and the collapse of most of the large commercial banks around the world perhaps even BAC. Lewis extracted a govt. backed subsidy for the Merrill purchase once the size of the Merrill losses became known. If we are to call for heads on sticks lets start with Stan Oneal the former ceo of Merrill who single handedly destroyed a great company in record time and his replacement John Thain who constantly underestimated the scope of Merrills problems and a bunch of unnamed hedgies who took huge CDS positions in weakened financials and then tried to start runs on the banks

Apr 26 11:26 AM

[nyoneway:]

Blame this on Tim Geithner, him and his bunch of GS loving buffoons failed to offer enough support for a Lehman bailout, which opened the door for the Amerrill deal.

Apr 26 12:00 PM

[Kyle Krol:]

Please Help...Wamu Truth...Please Help...

wamustory.com/
wamuqd.com/
www.wamu-shareholders-...
wamuequity.org/history...

Apr 26 01:06 PM