Andrew Cuomo, Attorney General of New York, has filed charges of fraud against Ken Lewis, former Bank of America (BAC) chief executive and Joe Price, the bank’s former chief financial officer. The charges are civil, which raises the question: Why isn't fraud a criminal act?
The charges relate to the intertwined events related to TARP (U.S. government's Troubled Asset Relief Program) and the acquisition by Bank of America of Merrill Lynch at the height of the financial crisis in the fall of 2008. After an investigation that has taken more than a year, the New York charges include a representation that Price mislead BAC legal counsel about the magnitude of losses at Merrill to avoid having to make a disclosure of expected losses to shareholders prior to a vote to approve the acquisition.
Mr. Lewis is charged with manipulation of the TARP administrators to get more financial support out of the program. Lewis is represented in the charges as having "shaken down" the government for $20 billion in TARP funds with a threat to back out of the Merrill Lynch deal because of "material adverse changes."
Connecting the dots here (by the author) creates a picture of possible collusion between the charged parties to hide the true financial condition of Merrill Lynch from the BAC shareholders while overstating the same conditions to blackmail the government.
The SEC has recently reached a settlement with BAC related to this matter with a BAC payment of $150 million.
Let's see - $150 million cost for access to $20 billion in government funds and to compensate for billions in investor losses. Does BAC consider this settlement just a cost of doing business? It would be a minor cost, much less than 1% of all the money involved.
If the New York charges hold water one has to question what is the value of the SEC. If fraud was involved, why couldn't the SEC find it? A $150 million settlement for tens of billions of fraud just doesn't add up to justice. The implication is that the SEC found no fraud or that the fraud committed was not a clear violation of securities law. In either case, Houston, we have a problem.
According to an article by Greg Farrell at ft.com, the following statement has been issued by Bank of America:
“We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit. 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.”
At least they don't claim to be doing God's work.
Disclosure: No positions in BAC.
