Stakes go higher in Bank of America CEO's case

By LOUISE STORY New York Times

Feb. 4, 2010, 10:39PM

NEW YORK — The legal saga surrounding the takeover of Merrill Lynch by Bank of America, one of the pivotal moments of the financial crisis, took a fresh turn on Thursday as the attorney general of New York leveled civil fraud charges against Kenneth Lewis, the former Bank of America chief who masterminded the deal.

But no sooner did that news break than the Securities and Exchange Commission announced that it had struck a new, $150 million deal with Bank of America to settle its own cases involving the merger. Moments later, North Carolina's attorney general announced that his office also had reached a settlement.

The developments open several new fronts in one of the most closely watched legal battles in American finance — one that now pits Wall Street enforcers against each other.

Andrew Cuomo, New York's politically ambitious attorney general, is upping the ante in a high-stakes match against Lewis and Bank of America. The SEC, however, is eager to put the matter to rest after suffering embarrassing setbacks in its case. Bank of America insists its executives did no wrong, although it, too, wants to put the case behind it.

Cuomo, who is running for governor of New York, is riding the wave of popular anger directed at big banks, which have stunned many Americans with their quick recovery from the financial collapse. Much like the SEC, his office claims that Bank of America essentially hid from its shareholders billions of dollars in losses at Merrill, which later forced Bank of America to seek a second bailout from Washington.

But unlike the SEC, which has focused broadly on Bank of America itself, Cuomo has focused instead Lewis and another executive, Joe Price, who was Bank of America's chief financial officer when the Merrill deal was struck. The fallout from the star-crossed deal eventually drove Lewis from his post as chief executive officer. Price remains at the bank, though he stepped down from the chief financial officer job this year.

Attorneys for both Lewis and Price said the charges were without merit. The bank is paying both executives' legal fees.

Cuomo made few new claims in a 90-page complaint filed on Thursday. The complaint painted Price as the central figure in the case. Cuomo accused Price of hiding the extent of Merrill's losses from Bank of America's own lawyers when seeking advice on whether to update shareholders about the deepening pool of red ink.

Cuomo is wielding a powerful weapon in his case. Under New York's Martin Act, the attorney general has broad powers in securities enforcement.

The SEC, meantime, is seeking to bring its long, troubled investigation to an end. But its new settlement must be approved by Judge Jed Rakoff — the same federal judge who rejected a previous $33 million accord as woefully low and, in blistering terms, accused the SEC of going too easy on Bank of America and its executives. Rakoff, a federal judge in New York, will hold a hearing on the new settlement on Monday.

Bank of America directors pressed in recent months to settle. But Cuomo was unwilling to settle for a small sum and wanted Lewis and Price held accountable.

nancy@callnancyfurst.com