New York subpoenas Ken Lewis in Merrill Lynch investigation

By Stephen Foley
Saturday 21 February 2009 01:00

Ken Lewis, the chief executive of Bank of America, has been subpoenaed in a New York state investigation into whether the company misled investors about its takeover of Merrill Lynch last year.

Andrew Cuomo, the New York attorney general, is examining whether secret information about the size of bonuses to be paid to Merrill staff should have been made public, and whether Merrill broke the law when it brought forward payments so that they went out before BofA took control of the company.

The controversy over the early bonuses was one of the factors in the sacking last month of John Thain, the Merrill chief who had assumed a new role inside BofA. Mr Thain himself gave testimony to Mr Cuomo’s investigation this week, it has emerged.

In an all-day questioning on Thursday, Mr Thain was asked about $4bn (£2.8bn) in early bonuses paid to Merrill employees and why the BofA merger agreement contained a secret attachment outlining the maximum Merrill could pay.

It is not clear when Mr Lewis will be interviewed.

As well as the issue of the bonuses, the BofA boss is expected to be quizzed on what he knew about Merrill’s spiralling losses, and when he knew it.

Between the signing of the merger agreement, in the frantic hours before the collapse of rival Lehman Brothers last September, and the closure of the deal on 1 January, Merrill posted a $15.3bn quarterly loss – a sum so huge that BofA initially tried to back out of the deal, before finally agreeing to accept money and guarantees from the US government to cover the costs. The internal wrangling was not disclosed to shareholders at the time.

Mr Cuomo’s BofA investigation is part of the attorney general’s wider pursuit of wrongdoing on Wall Street during the credit crisis.

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