Lewis, BofA reach settlement over Merrill Lynch deal

Former Bank of America Corp. Chairman Kenneth Lewis agreed to a three-year ban on serving as a public company's officer or director and to pay $10 million to settle claims by New York's attorney general that he misled investors about the bank's 2009 purchase of Merrill Lynch & Co.
APR 16, 2014
Former Bank of America Corp. Chairman Kenneth Lewis agreed to a three-year ban on serving as a public company's officer or director and to pay $10 million to settle claims by New York's attorney general that he misled investors about the bank's 2009 purchase of Merrill Lynch & Co. Under the agreement, announced yesterday by Attorney General Eric Schneiderman, the bank will pay $15 million to resolve claims against it. The bank, the second largest in the U.S., agreed to corporate-governance reforms as part of the settlement. The agreement is “one of the first successful attempts by law enforcement to hold accountable a CEO or individual at a major institution” since the financial crisis, Mr. Schneiderman said Wednesday in a statement. Also Wednesday, Bank of America agreed to a $9.5 billion settlement to resolve claims it misled government-backed buyers of mortgages packaged into bonds. Bank of America was accused of failing to disclose mounting losses of more than $9 billion at Merrill Lynch as it sought to merge with the brokerage firm during the height of the financial crisis. The bank will pay Mr. Lewis's $10 million share of the settlement, said a person familiar with the agreement who asked not to be identified because the matter wasn't public. “Mr. Lewis consistently has made clear that the bank relied on experienced legal counsel --– both inside the bank and at a prestigious law firm –- with regard to what needed to be disclosed to shareholders,” Bruce Yannett, a lawyer for Mr. Lewis, said in a statement. “The Merrill Lynch acquisition has since proven to be an unmitigated success for Bank of America and its stockholders,” Mr. Yannett said. Lawrence Grayson, a spokesman for the Charlotte, N.C., bank, declined to comment on the accord, which ends most of a lawsuit filed by Mr. Schneiderman's predecessor, New York Gov. Andrew Cuomo. The case, in state court in Manhattan, is continuing against Joe L. Price, the bank's former chief financial officer, Mr. Schneiderman's office said. “We understand the bank and Ken Lewis have not admitted any wrongdoing but have accepted certain terms requested by the NYAG in order to put the matter behind them,” William Jeffress, a lawyer for Mr. Price, said in an e-mail. “Joe Price has made a different decision and we continue to defend the case.” TARP BAILOUT The state accused Bank of America of misleading shareholders about losses at Merrill Lynch to win their approval of the $18.5 billion deal and then manipulating the federal government into contributing bailout funds from the Treasury Department's Troubled Asset Relief Program to complete it. Bank of America took its first $15 billion bailout by taxpayers in 2008 as Merrill took $10 billion. A second round of $20 billion came in January 2009 after Merrill's losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the company's stability if the takeover proceeded. Wednesday's “settlement demonstrates a major victory in our continued commitment to applying the law equally to individuals, as well as corporations,” Mr. Schneiderman said in his statement. “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.” The bank has faced regulatory probes, investor lawsuits and criticism from lawmakers over claims it didn't warn shareholders about spiraling losses at Merrill before they voted in December 2008 to buy the brokerage, an acquisition that was completed the following January. In 2012, Bank of America agreed to pay $2.43 billion to settle a shareholder class action over losses suffered by investors as a result of the Merrill Lynch acquisition. Wednesday, Bank of America said it boosted its dividend for the first time since 2007 in its latest steps to put the financial crisis behind it. The lender will pay $6.3 billion in cash to Fannie Mae and Freddie Mac to resolve lawsuits claiming it misrepresented loans packaged into bonds that were bought by the government-sponsored enterprises, it said in a statement. The company also said it will buy back about $3.2 billion of mortgage bonds from the firms. Chief executive Brian T. Moynihan has spent more than $50 billion to resolve claims related to shoddy mortgages, most tied to Mr. Lewis' 2008 purchase of Countrywide Financial Corp. The bank also said Wednesday that it will quintuple its quarterly dividend to 5 cents a share and repurchase $4 billion of stock after the Federal Reserve approved its capital plan. Bank of America's payout had been stuck at 1 cent since 2009, when the company cut it to conserve capital amid the financial crisis. The new dividend will begin in the second quarter, the bank said. (Bloomberg News)

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