US bank denies misleading shareholders

Bank of America rejects charge of concealing Merrill Lynch losses before takeover
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The Independent Online

Bank of America has launched a last-ditch attempt to shield its most senior executives from allegations they misled shareholders, after the New York attorney general, Andrew Cuomo, signalled that he was close to laying charges against them.

The legal controversy over BofA's acquisition last year of Merrill Lynch appears close to a denouement, after Mr Cuomo said he had found four occasions on which executives should have revealed important information about spiralling losses and expenses at Merrill.

But BofA has hit back, insisting that a December document outlining the Merrill acquisition ahead of a shareholder vote "did not contain any false or misleading statements".

The bank's legal adviser, Lewis Liman, wrote: "Bank of America and Merrill Lynch properly reported Merrill Lynch's results when they were required to do so – after the close of the quarter."

BofA shareholders were so furious to discover the mounting losses at Merrill that they stripped Ken Lewis of his role as chairman at their most recent annual meeting. He remains chief executive, but has spent the year under legal and political pressure to explain what he knew about Merrill's finances in the days leading up to the shareholder vote to approve the deal on 5 December.

By the end of the month, Mr Lewis had told the government he was considering invoking a "material adverse change" to annul the deal before it closed on 1 January. Both the Treasury and the Federal Reserve pressured him not to do so and the deal went ahead, with the government later giving $20bn in aid to help cover Merrill's losses.

Mr Cuomo says that BofA was having internal discussions about the "material adverse change" clause before 5 December. He also says BofA executives knew Merrill was planning to bring forward staff bonus payments to a date before BofA's formal takeover.

And the two sides are engaged in a legal row over whether BofA's in-house and external lawyers should reveal the details of their advice on when and what information should be revealed to shareholders. Mr Lewis and other executives have said their decisions about when to disclose Merrill's bonuses and losses were taken on the basis of legal guidance.

One of the in-house lawyers who gave advice on the material adverse change issue before the shareholder vote was made redundant the next week.