Ken Lewis, the retired boss of Bank of America, and the company's former finance chief Joe Price have been charged with fraud over their handling of the acquisition of Merrill Lynch during the financial panic of 2008.
The New York Attorney General, Andrew Cuomo, launched a civil lawsuit against the two men and Bank of America (BofA) itself, saying that the defendants misled shareholders and the federal government over the acquisition.
The lawsuit came on the day Bank of America agreed to compensate its shareholders $150m in order to settle claims that it failed to reveal the deteriorating state of Merrill Lynch's finances, and the bonuses the investment bank planned to pay, before shareholders voted to approve the deal in December 2008.
Mr Cuomo, who is running for governor of New York, laced his lawsuit with the language of public outrage at the bailout of Wall Street.
He said: "This merger has, in many ways, become a classic example of how the modus operandi of our nation's largest financial institutions led to the near collapse of our financial system.
"In order to complete its deal, Bank of America's management misled its shareholders by not disclosing massive losses that were mounting at Merrill Lynch [and] once the deal was approved, Bank of America's management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they intended to back out.
"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."
The acquisition of Merrill Lynch, on the same weekend that Lehman Brothers failed, secured Mr Lewis's long-held ambition to turn BofA into a major force in investment banking, but it also cost him his job. He was forced to retire early amid shareholder anger that losses at Merrill Lynch forced the bank to turn to the federal government for $45bn in bailout money.
Last night, Mr Lewis said he had acted in good faith and in accordance with advice from BofA's in-house lawyers, and that Mr Cuomo's lawsuit was "a badly misguided decision without support in the facts or the law". Mr Price, who was moved from chief financial officer to head of the consumer and small business banking arm, said the allegations were "utterly false". Bank of America said it would vigorously defend itself and that Mr Cuomo had access to all the same evidence as the SEC, which had concluded the bank could be charged only with infractions of disclosure rules and not with fraud, and that none of the individual directors should be charged.
The $150m settlement was the two sides' second attempt to strike a deal. The SEC said it had yet to decide how to distribute the $150m to shareholders.