The Settlers

[ElNono]

Bank of America Settles S.E.C. Suit Over Merrill Deal
By ZACHERY KOUWE
Published: August 3, 2009

It was a watershed moment of the financial crisis — a you-must-be-kidding payday that prompted a state investigation and an outcry in Congress. And, for Kenneth D. Lewis, it has become a nagging, multibillion-dollar headache.

On Monday the Securities and Exchange Commission accused Bank of America, the bank Mr. Lewis runs, of misleading its shareholders about $5 billion in bonuses paid by Merrill Lynch, the ailing brokerage giant that Bank of America bought last year.

The developments once again focus an uncomfortable spotlight on Mr. Lewis, who is struggling to win back investors and persuade them that his daring bet on Merrill will pay off.

The $50 billion merger, completed at the behest of federal officials, has been the subject of heated hearings in Congress, as has the question of who knew what and when about the Merrill bonuses. The payments were made despite mounting losses that soon forced Bank of America to seek a second lifeline from Washington.

Bank of America will pay $33 million to settle the S.E.C.’s claims, without admitting or denying the accusations, but the agreement is unlikely to put to rest questions swirling around Bank of America and its leadership.

Indeed, news of the settlement came on the same day that Bank of America announced a significant management shake-up, one that Mr. Lewis suggested put in place several possible successors. Among the additions is Sallie L. Krawcheck, the former Citigroup executive, who will join Bank of America as head of global wealth and investment management .

The pressure on Mr. Lewis has been unrelenting. No sooner was the settlement announced Monday than the CtW Investment Group, which has been highly critical of Mr. Lewis, again called for him to step down.

“He bears ultimate responsibility for the disclosure failure,” CtW said.

The group, which represents several union pension funds, urged the bank to install a new chief executive who could restore investor confidence and claw back bonuses paid “surrep iously” to Merrill Lynch executives.

The S.E.C.’s lawsuit centers on statements Bank of America made in its proxy statement about the Merrill deal, which was announced last Sept. 15. The bank, one of the nation’s largest, told its investors in the proxy on Nov. 3 that Merrill had agreed not to pay year-end performance bonuses or other incentive pay before closing the deal without Bank of America’s consent.

But, unknown to investors, Bank of America had already agreed that Merrill could pay up to $5.8 billion in year-end compensation to employees, the S.E.C. said in its complaint, which was filed in federal court in New York. That agreement was memorialized in a separate bonus schedule that was omitted from the proxy statement, the S.E.C. said.

“Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” said Robert Khuzami, director of the S.E.C.’s division of enforcement, in a statement.

The Bank of America-Merrill deal, as well as the government’s role in it, drew sharp scrutiny on Wall Street and in Washington. Lawmakers armed with e-mail messages and internal do ents have claimed at various hearings that Federal Reserve and Treasury officials had threatened to oust the bank’s top management if it pulled out of the deal, a claim various officials, including Ben S. Bernanke, the chairman of the Fed, have denied.

Dennis J. Kucinich, Democrat of Ohio, said the matter was unlikely to end here. “This may not be the last fine that Bank of America pays for how it handled its merger of Merrill Lynch,” he said. Andrew M. Cuomo, the New York attorney general, who referred his investigation into the bonuses to the S.E.C. in April, said that his inquiry was continuing.

The S.E.C.’s complaint shows that Bank of America signed off on a $5.8 billion bonus pool for Merrill employees before the merger was announced last September. The boards of both companies also signed off on the year-end bonus pool. On Nov. 12, Merrill apprised the bank that it was accelerating the schedule of year-end bonuses and Bank of America gave its approval, according to the complaint.

John A. Thain, who was ousted as chief of Merrill after the bonuses were disclosed, has accused Mr. Lewis of lying about Bank of America’s involvement in the bonus payments.

In addition to Ms. Krawcheck, Bank of America also hired Brian Moynihan, currently the head of its global corporate and investment banking and global wealth management arms, to become the bank’s head of consumer banking, a division that will include Bank of America’s deposit, small-business and credit card businesses.

Tom Montag, who has been the bank’s head of global markets, will take on the additional role of running the bank’s global corporate and investment banking business.

Liam McGee, who currently runs the consumer and small-business banking unit, will be leaving the company after nearly 20 years. Mr. McGee said in Monday’s news release that he planned to “pursue my goal of running a company.”

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[ElNono]

Ex-Chief of A.I.G. Settles S.E.C. Case for $15 Million
By JACK HEALY
Published: August 6, 2009

Federal regulators accused Maurice R. Greenberg, the former chief executive of the beleaguered American International Group, on Thursday of overseeing deals that fraudulently overstated A.I.G.’s financial position, charges that came after a four-year investigation.

Mr. Greenberg, 84, will pay $15 million to settle the suit, an agreement that was announced simultaneously as the government described the charges against him. A former chief financial officer at A.I.G., Howard I. Smith, will pay $1.5 million to settle similar accusations.

The civil fraud charges predate the recent financial cataclysm at A.I.G., which has received $180 billion in government bailout money and is now 80 percent government-owned. Regulators said the fraud stemmed from fake reinsurance transactions, efforts to mask losses by using offshore s en ies and other transactions that seemed to bolster A.I.G.’s reserves and gains from investment income.

In a statement issued by the firm of his lawyer, David Boies, Mr. Greenberg said that he was “pleased to finally put these issues behind him and be able to concentrate on building for the future.”

“Mr. Greenberg appreciates the S.E.C.’s recognition that he personally should not be charged with any fraud,” the statement said, “and the settlement is recognition of his lack of responsibility, even as a control person, for the vast majority of accounting issues included in A.I.G.’s restatement and the S.E.C.’s charges against the company.”

The S.E.C. said that Mr. Greenberg and Mr. Smith were involved in “numerous improper accounting transactions” that inflated A.I.G.’s earnings from 2000 to 2005. Regulators said Mr. Greenberg publicly boasted about the company’s strength and double-digit growth while concealing its weaknesses through accounting sleights of hand.

“Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed A.I.G. to claim success in meeting its performance goals,” Robert S. Khuzami, director of the S.E.C.’s division of enforcement, said in a statement.

Over four decades, Mr. Greenberg built A.I.G. into one of the world’s largest insurance firms, but he was forced to sever ties with the company in 2005 amid an accounting scandal stemming from reinsurance transactions that made A.I.G.’s finances look stronger than they really were.

The company was forced to restate its earnings by more than $3 billion and reached a $1.6 billion settlement in 2006 with state and federal regulators.

A spokesman for A.I.G. said the firm had no comment. Last month, a federal jury cleared Mr. Greenberg in a civil suit brought by A.I.G., which accused him of wrongfully taking $4.3 billion in stock in 2005.

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[Wild Cobra]

I liked that game:

[ElNono]

I liked that game:

Good game indeed.

[ElNono]

Back on topic, all these guys settling for $15-30 millions, when accused of swindling billions of dollars... just makes me sick...

[Wild Cobra]

Good game indeed.

Sorry, that was the first thing that came to mind with the le. The Amiga version rocks. Like Lemmings, it will do things the PC version won't.

These guys should be prosecuted. It wouldn't surprise me if they settled for less than what ever bonus they received anyway.

Although not criminal, I think all those pushing for the bailout, especially the so-call experts, should be jailed as well. They robbed the treasury.

[Wild Cobra]

Back on topic, all these guys settling for $15-30 millions, when accused of swindling billions of dollars... just makes me sick...

Me too. I can almost excuse the politicians for being duped. However, the politicians that had connections with these people and the experts who advocated this, I would like to see jailed, or even executed.

[boutons_deux]

meer handslaps. These corps made $Bs and the mgrs made 100s of $Ms, of which they keep it all.

[ElNono]

Wall Street, we have a problem... judge probably wants his cut.

Judge Attacks Merrill Pre-Merger Bonuses
By LOUISE STORY
Published: August 10, 2009

Reigniting a major controversy over Wall Street pay, a federal judge on Monday sharply criticized the bonuses that Merrill Lynch hurriedly paid out before it was acquired by Bank of America last year and pointedly questioned a federal settlement that had seemed to put the issue to rest.

A week after the Securities and Exchange Commission announced that it had settled the matter, Judge Jed S. Rakoff questioned whether the $33 million agreement with Bank of America was adequate. He refused to approve the deal, saying too many questions remained unanswered, including who knew what and when about the controversial payouts.

His ruling prolongs what has become a major embarrassment for Bank of America and its chief executive, Kenneth D. Lewis, and also deals a stinging blow to the S.E.C., which needs Judge Rakoff’s approval of its deal with the bank.

Judge Rakoff ordered the bank and the commission to submit more information to him within two weeks.

During a hearing in New York that was heated at times, the judge was scathing about the settlement, in which the S.E.C. accused Bank of America of misleading its shareholders. Bank of America neither admitted nor denied wrongdoing.

Bank of America and Merrill Lynch, Judge Rakoff said, “effectively lied to their shareholders.” The $3.6 billion in bonuses paid by Merrill as the ailing brokerage giant was taken over by the bank was effectively “from Uncle Sam.”

The Merrill bonuses, which were the subject of a state investigation and prompted an outcry in Congress, were paid even though Merrill Lynch lost $27 billion last year. Its deepening red ink later forced Bank of America to seek a second taxpayer-financed bailout

“Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?” the judge asked.

Judge Rakoff, who took an active role in the S.E.C.’s case against WorldCom, is yet another voice in a growing chorus of critics of the Bank of America-Merrill deal, which was forged in the heat of the financial crisis last fall. Both the S.E.C. and Bank of America defended the settlement. The bank’s fine, however, represented a small fraction of the bonuses paid out by Merrill Lynch, a fact the judge and other critics seized on. In fact, at least one individual at Merrill Lynch collected a bonus totaling more than that amount.

The judge characterized the $33 million fine as “strangely askew” given the accusations made, the magnitude of Merrill’s losses and the subsequent bailout for Bank of America. The judge questioned the role of top executives at the companies, in particular Mr. Lewis and John A. Thain, the former chief executive of Merrill Lynch, both of whom signed off on a proxy statement to investors.

“Was there some sort of ghost that performed those actions?” Judge Rakoff said.

The S.E.C.’s complaint focused on a do ent that detailed the bonuses, but which was not included in the merger agreement or proxy statement that was sent to the companies’ shareholders, who voted to approve the merger on Dec. 5.

The S.E.C.’s lawyer, David Rosenfeld, said repeatedly during the hearing Monday that the agency had chosen not to make allegations against individuals in the case.

Mr. Rosenfeld spoke softly and was called up to the microphone after Judge Rakoff criticized the S.E.C. for the evidence it had presented — or failed to. The judge said the commission was remiss for not determining who at the companies decided not to disclose the bonus agreement. And he suggested that they should have interviewed the external lawyers for both companies.

“You filed a rather uninformative, bare-bones complaint,” Judge Rakoff said.

Lewis J. Liman, a lawyer representing Bank of America, told the judge, when prodded, that the bank believed it had not wronged its shareholders. Mr. Liman, son of Arthur L. Liman, the lawyer who led the Iran-contra investigation in the Senate, seemed at times dismissive, saying at one point: “My God! Bonuses on Wall Street? It is not a matter of surprise.”

Merrill had little choice but to pay many of the bonuses, Mr. Liman said. Of the $3.6 billion, Merrill had committed $850 million in the form of guaranteed bonuses. Mr. Liman said the rest of the money was shared among 39,000 workers who received average payments of $91,000 — though he did not mention that there were 696 people at Merrill who made more than $1 million in bonuses.

“I’m glad you think that $91,000 is not a lot of money,” the judge said. “I wish the average American was making $91,000.”

Mr. Liman agreed that $91,000 was quite a lot.

Judge Rakoff said he might hold another hearing to consider evidence of whether the bonuses were needed. He said he might want to know if Merrill’s management studied how many of the roughly 39,000 bonus recipients would have left had they not received their payouts.

Mr. Liman said the bank could prove in litigation that there were a number of companies that might have hired Merrill’s employees.

Mr. Rosenfeld of the S.E.C. said he had based the fine in part on a case the agency filed against Wachovia over disclosure issues in 2001. That case involved disclosure of a stock buyback program that cost $500 million.

The lawyer for Bank of America periodically whispered what appeared to be suggestions to Mr. Rosenfeld. One point that Mr. Liman emphasized was that the $3.6 billion was paid with funds other than the federal bailout money, and he said that if the bonuses were a problem simply because of the bank received aid, other banks that had received bailouts might face similar allegations.

The judge was unmoved. “Money is money, the last time I checked,” Judge Rakoff responded.

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