New York Attorney General Andrew Cuomo has written a letter to the SEC to this affect At heart is this issue:
The week after the shareholder vote -and days after Merrill Lynch set its bonuses Merrill Lynch quickly and quietly booked billions of dollars of additional losses. Merrill Lynch's fourth quarter 2008 losses turned out to be $7 billion worse than it had projected prior to the merger vote and finalizing its bonuses. These additional losses, some of which had become known to Bank of America executives prior to the merger vote, were not disclosed to shareholders until mid-January 2009, two weeks after the merger had closed on January 1, 2009.
Immediately after learning on December 14, 2008 of what Lewis described as the "staggering amount of deterioration" at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. After a series of internal consultations and consultations with counsel, on December 17, 2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter.
At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Lewis, Bank of America's CFO, and other officials discussed the issues surrounding invocation of the MAC clause by Bank of America. The Federal officials asked Bank of America not to invoke the MAC until there was further consultation. There were follow-up calls with various Treasury and Federal Reserve officials, including with Treasury Secretary Paulson and Chairman Bernanke. During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege.
Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced:
This of course, places Secretary Paulson at the heart of a charge of securities fraud. Notice that Ben Bernanke was also involved in pressuring this deal to go through. If you think this is just CEO Lewis trying to squirm out of taking responsibility for a bad deal, read on:
In an interview with this Office, Secretary Paulson largely corroborated Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management.
Now if this isn't a CLEAR CUT CASE that DEMANDS action by the SEC, I don't know what is. This will be a test of the US Government signalling that under Obama rule of law exists, or chinese menu of applying the law, like Mr. Bush did, continues.
To gain the world confidence, indictments must fly to show the world Obama will clean up the USA. The mass media will spin it as some sort of partisan issue. Don't believe it. This is simply enforcing the law.
I for one still remain a pessimist and think that the Bush years are here to stay, the law applies when it suits the administration. Let's hope I'm wrong.