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NEW YORK The New York Attorney General's office subpoenaed five current and former members of Bank of America Corp.'s board Wednesday as part of an investigation into its acquisition of troubled investment bank Merrill Lynch & Co., according to a person familiar with the investigation.
The directors are expected to be questioned about what they knew regarding the mounting losses and bonus payments at Merrill before the deal closed on Jan. 1 and what role they played in deciding whether to disclose that information to shareholders, said the person, who asked for anonymity because the investigation is ongoing.
The subpoenas of board members mark a new turn in New York Attorney General Andrew Cuomo's investigation, and they reflect continuing pressure on bank CEO Ken Lewis after U.S. District Judge Jed Rakoff in New York this week refused to accept a settlement between the bank and the Securities and Exchange Commission.
The $33 million agreement would have resolved the SEC's claim that the bank deceived investors in November about bonuses to be paid to executives at Merrill Lynch & Co. Bank of America bought Merrill in January.
The five subpoenaed directors are Thomas May, chief executive officer of NStar; Spartanburg, S.C., developer William Barnet III; retired Morehouse College President Walter Massey; Boston investment firm owner John Collins; and retired Army General Tommy Franks, the Wall Street Journal reported.
Bank of America will “cooperate with the attorney general's office as we maintain that there is no basis for charges against either the company or individual members of the management team,” according to a statement from the bank.
Cuomo's office is likely to ask about any threats made by federal regulators to remove board members if the deal wasn't completed, as Bank of America executives have said.
The subpoenas come as Cuomo's office is preparing to file fraud charges in the coming weeks against several high-ranking executives at the bank over its acquisition of the troubled investment bank.
All 16 directors who were on BofA's board last December are expected to be questioned by the attorney general's office eventually, the person said. CEO Ken Lewis, who was chairman at the time, has already testified.
Bank of America agreed to acquire Merrill Lynch in a hurried deal almost exactly one year ago at the height of the financial crisis, just as Lehman Brothers was about to file for bankruptcy. It was later revealed that Merrill, with the knowledge of Bank of America executives, paid Merrill employees $3.6 billion in bonuses shortly before the deal closed.
Bank of America had settled a separate investigation last month into disclosures about the Merrill bonuses with the SEC, but on Monday a federal judge threw out that $33 million deal, saying it “cannot remotely be called fair” and penalized BofA shareholders. The judge ordered the case to go to trial Feb. 1.
Merrill wound up paying the bonuses for 2008 despite losing $27.6 billion that year, a record for the firm. Bloomberg News contributed.
