Former Bank of America CEO Ken Lewis is in a category all by himself. Following the Feb. 4 filing of civil fraud lawsuit by New York Attorney General Andrew Cuomo filed, Lewis became the highest ranking banking official to face charges of wrongdoing as part of the financial industry’s meltdown.
Cuomo’s lawsuit accuses Lewis, former Bank of America CFO Joe Price (who now runs the bank’s consumer banking division) and Bank of America itself of manipulating both investors and the government by not disclosing the full extent of massive financial losses occurring at Merrill Lynch before shareholders voted on the firm’s pending acquisition. The suit says Bank of America then used Merrill’s financial predicament to get additional bailout funds from the government.
“Ken Lewis is the poster child – or scapegoat – for the excesses of the past,” said Mark Williams, executive-in-residence at Boston University and a former bank examiner in a Feb. 5 article in Bloomberg. While Lewis didn’t push as deeply as some rivals into mortgage-backed securities, “he made bad strategic decisions” by overpaying for Merrill Lynch and subprime home lender Countrywide Financial Corp., Williams said.
According to Cuomo’s complaint, Bank of America was given advice by its own legal counsel, Timothy Mayopoulos – as well as outside counsel – as early as November to tell investors about the current and predicted financial losses of Merrill Lynch. Deloitte and Touche, Merrill’s auditing firm, also suggested disclosure, the complaint says.
“ . . . Bank management failed to disclose that by December 5, 2008, the day Bank of America shareholders voted to approve the merger with Merrill Lynch, Merrill had incurred actual pretax losses of more than $16 billion. Bank management also knew at this time that additional losses were forthcoming and that Merrill had become a shadow of the company Bank of America had described in its Proxy Statement and other public statements advocating the merger,” the complaint reads.
Corporate Treasurer Jeffrey Brown also “urged Price to make a disclosure to no avail,” according to the complaint. “When Price dismissed the Treasurer’s advice, the Treasurer warned, ‘I didn’t want to be talking [about Merrill’s losses] through a glass wall over a telephone.’ ”
“Astonishingly, Price seemed to have forgotten this dramatic exchange,” according to the lawsuit.
Lewis also was aware of the disclosure issues, because Price updated him on disclosure and loss issues.
More of what Lewis did or didn’t know will likely come to light in the coming days and weeks ahead. In the meantime, however, the opening summary of Cuomo’s lawsuit may sum up the situation best: “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. 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.”