Former BofA CEO Kenneth Lewis Banned from Wall Street
The former top executive of Bank of America (the Bank) was a named party in a settlement between the bank and the State of New York announced on Wednesday. Kenneth D. Lewis, who was essentially forced out of the bank's chairmanship and then from his position as CEO early in the financial crisis, has been fined and barred from serving as an officer or director of a public company for three years as part of a $25 million agreement relating to the Bank's 2008 merger with Merrill Lynch & Company.
The settlement was announced by the office of Attorney General (AG) Eric T. Schneiderman which alleged that the Bank, Lewis, and the Bank's former chief financial officer Joe Price, failed to disclose specific information about mounting losses at Merrill Lynch as the bank was attempting to merge with that historic Wall Street Firm. According to the settlement, the executives were aware that Merrill's losses were forecast at more than $9 billion but failed to disclose that information to shareholders prior to a merger vote. It is also alleged that the two executives misrepresented the impact that the merger would have on the Bank's future earnings.
Schneiderman said the barring of 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. The Bank will pay Lewis' portion of the fine. The AG said he also intends to file a summary judgment motion against Price on April 4.
"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," Schneiderman said. "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."
The settlement also requires the Bank continue numerous corporate governance reforms, especially those relating to public filings and acquisition-related activities. The Bank will pay the State $15 million to reimburse the costs incurred during the course of the AG's investigation and subsequent litigation of this matter.
Despite initially concealing the forecast losses from investors as immaterial, it is alleged that the Bank 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, subsequently manipulating the Treasury into providing an extra $20 billion bailout by threatening to back out of the merger without the money. The Bank continued to conceal Merrill's forecast 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.
Lewis was with Bank of America from 2001 to 2009 and is largely credited with building it into one of the nation's big five banks. In the run-up to the 2008 financial meltdown the bank also acquired major mortgage lender Countrywide which subsequently cost it billions in loan losses and has resulted in an ongoing marathon of legal problems. The merger with Merrill Lynch was completed on January 1, 2009 and by April Lewis had been ousted as chairman. He retired from the bank at the end of 2009.