EXECUTIVES from Bank of America (BoA) are the first top bankers to face charges in the wake of the financial meltdown.
Former chief executive Ken Lewis and former chief financial officer Joe Price will face charges after the New York State attorney filed civil fraud allegations yesterday.
Andrew Cuomo accused the pair, along with the bank itself, of an “enormous fraud” that helped bring the US financial sector to the brink of collapse. The pair stand accused of misleading shareholders about the extent of losses at Merrill Lynch in the lead up to its acquisition.
Just weeks after BoA’s buyout of Merrill, it emerged the beleaguered bank had made losses topping $16bn (£10.1bn) in the fourth quarter of 2008. Cuomo also accused BoA of overstating its ability to break off the Merrill deal to secure $20bn of Tarp bailout funds. He said Lewis told regulators BoA was ready to evoke a get-out clause in its agreement because of Merrill’s losses.
Cuomo said: “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.
“BoA engaged in a concerted effort to deceive shareholders and American taxpayers. This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules.
“Ultimately, this was an enormous fraud on taxpayers who ended up paying billions for Bank of America’s misdeeds. The conduct of BoA, 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.”
Lewis’s attorney Mary Jo White attacked the case as “a badly misguided decision without support in the facts or the law.”
She said: “There simply is no basis for any case against Lewis or any other individual.
“Lewis has been unfairly vilified by the political search for accountability for the financial meltdown. This suit is without factual or legal basis.”
In a separate issue, the Securities and Exchange Commission yesterday agreed a $150m settlement with BoA over allegations they misled investors during the Merrill deal. Last month Bank of America reported a net loss of $194m in the last three months of 2009. It has repaid the $45bn government bailout money it received.
Boston-based State Street agreed to pay more than $300m yesterday to the SEC over allegations the bank misled investors about its exposure.