A.G. Schneiderman Announces Former CEO Kenneth Lewis Barred For 3 Years From Serving As Officer Or Director Of Any Public Company
$25 Million Settlement With Bank Of America And Former CEO Kenneth Lewis For Allegedly Concealing And Misrepresenting Material Financial Forecasts While Seeking A Merger With Merrill Lynch In 2008
Bank Of America Also Agrees To Corporate Governance Reforms
Attorney General Will Continue To Pursue Its Claims Of Fraud Against Bank’s Former Chief Financial Officer Joe L. Price
NEW YORK — Attorney General Eric T. Schneiderman today announced a $25 million settlement with Bank of America Corporation and its former Chairman and Chief Executive Officer, Kenneth D. Lewis, regarding the bank’s actions as it sought to merge with Merrill Lynch & Co in 2008. Despite its top executives’ specific knowledge of mounting losses at Merrill Lynch that were forecast at more than $9 billion, Bank of America failed to disclose that information to shareholders prior to their vote on a proposed merger with Merrill Lynch. The Attorney General also alleged that the Bank’s former CEO and CFO, Kenneth Lewis and Joe Price, misrepresented to shareholders the impact that the merger with Merrill would have on Bank of America’s future earnings. The barring of Mr. Lewis from serving as an officer or director of a public company for three years, as well as the payment of $10 million to the State of New York, represents one of the first successful attempts by law enforcement to hold accountable a CEO or individual at a major institution since the financial crisis.
“Since I took office, I’ve acted on the belief that no one, no matter how rich or powerful, should escape accountability for their actions — especially ones that caused such damage to shareholders,” said Attorney General Schneiderman. “Today’s settlement demonstrates a major victory in our continued commitment to applying the law equally to individuals, as well as corporations. I would hope this closes one chapter of our ongoing efforts to ensure the frauds that occurred in and around the financial crisis are not forgotten.”
On April 4, the Attorney General intends to file a summary judgment motion against the remaining defendant in the case, Joe L. Price, the bank’s former Chief Financial Officer.
The settlement with Bank of America also requires the Bank to continue numerous corporate governance reforms, including the strengthening of the oversight functions of its Board of Director’s Audit and Disclosure Committees, and the retention of independent disclosure counsel who shall advise the Bank’s directors on the adequacy of the company’s disclosures in its public filings. The Bank will also create a Board-level Corporate Development Committee to provide greater oversight of certain of the Bank’s acquisition-related activities for at least another five years. Under the agreement secured by Attorney General Schneiderman, Bank of America will pay $15 million to reimburse the costs incurred during the course of the OAG’s investigation and subsequent litigation of this matter.
After a lengthy investigation of the conduct of Bank of America and its top executives concerning the Bank’s efforts to consummate a merger in late 2008 with Merrill Lynch, the Bank and two of its top executives were sued by former Attorney General Andrew Cuomo under the Martin Act and the Executive Law. The lawsuit alleges that they fraudulently withheld from investors material financial information that forecast rapidly-escalating, multibillion dollar losses at Merrill for its 2008 fourth quarter, while at the same time asking shareholders to approve a merger with Merrill. Despite concealing these forecasted losses from investors as immaterial, the Bank then immediately sought massive financial assistance from the federal government, claiming that there had been a “material adverse change” in Merrill’s financial condition over the previous three months. Bank of America continued to conceal Merrill’s forecasted losses until mid-January 2009, when disclosure of Merrill’s multibillion dollar fourth quarter losses led to a $50 billion sell-off in the shares of Bank of America.
The Office of the Attorney General’s investigation and prosecution of the Bank and its top executives directly contributed to the settlement last year of securities class action litigation arising out of the same facts, with investors and their counsel receiving $2.425 billion in damages. Plaintiffs’ counsel specifically acknowledged the OAG’s crucial contributions to bringing about this tremendous result for investors.
Litigation and settlement of this case has been handled by Karla G. Sanchez, Executive Deputy Attorney General for Economic Justice, and Philip G. Barber, Senior Enforcement Counsel.