Following Pension Lawsuits, Cuomo Charges BofA and Former Executives With Fraud

(February 8, 2010) — Bank of America and Merrill Lynch face a growing list of pending cases, largely from pension funds and individuals who claim BofA’s $50 billion purchase of Merrill Lynch was improper and misleading. Last fall, for example, five public pension funds filed a class action suit against the bank for millions of dollars in investment losses. Last week, New York Attorney General Andrew Cuomo added to the bank’s laundry list of suits, filing fraud charges against BofA and two of its former top executives over the Merrill purchase.

“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,” Cuomo said in a press release.

Cuomo’s civil lawsuit may block efforts by Brian Moynihan, Bank of America’s new CEO, to revive the largest bank in the U.S. Moynihan is not charged in the lawsuit.

Cuomo alleges that BofA, which received more than $20 billion of federal funds to cover Merrill’s losses, lied to investors and government officials, who were coordinating a bailout of the troubled bank at the end of 2008. He claims that former BofA CEO Kenneth Lewis and former Joseph Price misled federal officials about the $16.2 billion pre-tax loss at Merrill Lynch prior to a December 5, 2008 shareholder vote on the merger. Additionally, Cuomo alleges that BofA hid billions of dollars in bonuses paid to employees. BofA denied Cuomo’s charges, supporting the two executives and asserting they did nothing wrong.

Separately, BofA agreed to pay a $150 million civil fine that will be distributed to its shareholders to settle two earlier lawsuits from the Securities and Exchange Commission, which charged that the company failed to disclose extraordinary losses at Merrill and $3.6 billion of bonus payouts before the acquisition deal in 2008.

Cuomo’s more aggressive lawsuit, according to The Washington Post, raises the prospect that both former and current senior federal officials, including Treasury secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke, could be required to provide courtroom testimony for the first time over their involvement in the financial crisis.

In March 2009, five public pension funds sued BofA, claiming to have lost $274 million on their BofA investments between July 21, 2008 and January 20, 2009. The pension funds included the Ohio’s State Teachers Retirement System, the Ohio Public Employees Retirement System, the Teacher Retirement System of Texas, Dutch national fund Stichting Pensioenfonds Zorg en Welzijn, and Swedish pension fund Fjarde AP-Fonden.

In January, BofA posted a loss of $194 million in the three months to December, compared with a loss of $1.8 billion in the same period a year earlier.