BofA Shareholders Say They Were 'Misled' By CEO Kenneth Lewis

Sue Reisinger

Corporate Counsel

06-05-2012

A class action lawsuit against Bank of America Corporation is shedding more light on what bank executives knew and when they knew it, just before the bank’s shareholders voted to acquire Merrill Lynch & Co. Inc. in late 2008.

The suit claims the bank’s execs, including former CEO Kenneth Lewis, knew but failed to disclose that Merrill was suffering spiraling losses from the financial crisis of 2008. Merrill eventually booked a $15.8 billion quarterly loss, even as it was paying $3.6 billion in bonuses.

The bank disclosed neither the growing losses nor the huge bonuses to its shareholders before they voted to acquire Merrill on December 5 that year.

Many details of what Lewis knew were part of a Corporate Counsel cover story on the deal, “Was He Listening?”, published in November 2009. Lewis had said the bank learned of the losses after the shareholder vote, but the story revealed the “evidence is overwhelming that the bank knew much earlier.”

The story also included a look at then-bank general counsel Tim Mayopoulos, who learned of the size of the losses late on December 9, 2008, and was fired the next morning without cause or explanation.

The lack of disclosures eventually led to the bank agreeing to pay $150 million to settle an action brought by the Securities and Exchange Commission—but not before Judge Jed Rakoff clashed with the SEC over what he called its “half-baked justice” for punishing the company and not its executives.

Now the case is playing out again in the shareholder suit in U.S. District Court in Manhattan, before Judge P. Kevin Castel. In a deposition earlier this year, Lewis admitted he knew about the increasing losses when he spoke to shareholders before they voted.

In a memorandum available Monday, the plaintiffs argued for a partial summary judgment, claiming Lewis misled the shareholders with false assurances about Merrill’s stability. It asks the judge to find that Lewis’ use of outdated figures was a material statement of fact.

Lewis has always argued, and repeats it here, that he relied on the advice of counsel for his actions and statements.
Plaintiffs are represented by Kaplan Fox & Kilsheimer of New York; Bernstein Litowitz Berger & Grossman of New York; and Kessler Topaz Meltzer & Check of Radnor, Pennsylvania.

Lewis is represented by Andrew Ceresney, a partner at Debevoise & Plimpton. None of the attorneys have commented on the case.

The New York Times suggested in a story Monday that the case may lead to more calls for the government to get tougher with financial executives.
 
“The disclosure, coming to light in private litigation, is likely to reignite concerns that federal regulators and prosecutors have not worked hard enough to hold key executives accountable for their actions during the financial crisis,” the story said.