Ratcheting up pressure on the largest U.S. bank, New York Attorney General Andrew Cuomo has subpoenaed five current or former Bank of America Corp directors to learn what they knew about Merrill Lynch & Co's problems as the companies prepared to merge.
The attorney general issued the subpoenas on Wednesday morning to determine what did the board know and when did they know it, according to a person familiar with the probe who requested anonymity because Cuomo's investigation is ongoing.
According to the Wall Street Journal, the subpoenaed directors are the five members of Bank of America's audit committee at the time.
They include: Walter Massey, professor emeritus of Morehouse College and now the bank's chairman; Thomas May, the chief executive of utility NStar who chaired the audit committee; retired Army Gen. Tommy Franks; real estate executive William Barnet and venture capital executive John Collins. Only Massey and May are still on the board.
Directors are responsible to shareholders that elected them, said Cornelius Hurley, director of Boston University's Morin Center for Banking and Financial Law. Doing the right thing is a rule and, if someone says do the wrong thing, that doesn't absolve them from that responsibility.
Cuomo wants to know about directors' familiarity last November and December with Merrill's mounting losses, the $5.8 billion of bonus payouts that Bank of America authorized and which details should be disclosed to shareholders, the person said.
Most if not all of the 16 directors at the time may be called to testify, the person said. All 16 either did not return calls or could not be reached for comment.
Did the boards of directors of our largest financial institutions protect the rights of shareholders, were they misled, or were they little more than rubber stamps for management's decision-making? Cuomo said in a statement. We intend to find out what Bank of America's board knew and when they knew it during the Merrill Lynch merger.
Cuomo has threatened to sue Bank of America officers, perhaps including Chief Executive Kenneth Lewis, and its lawyers over a lack of disclosures about the merger, which shareholders approved last December 5 and which closed on January 1.
Bank of America did not comment on the subpoenas. It said it will continue cooperating with Cuomo's office and believes there is no basis for charges against the bank or executives. Lewis has previously testified before Cuomo's office.
On Monday, Federal Judge Jed Rakoff rejected the bank's $33 million settlement of U.S. Securities and Exchange Commission charges that it lied to shareholders about the bonuses.
Cuomo has accused Bank of America of withholding information about the bonus payments, Merrill's $15.8 billion fourth-quarter loss, a $2 billion write-down for subprime mortgages and its right to back out of the merger.
Lewis tried to invoke a contractual provision to scuttle the merger, but has said Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson pressured him to complete the merger so as to not upset the financial system.
Bernanke disputed Lewis' characterizations of his role. Bank of America in January accepted a $20 billion emergency bailout to absorb Merrill, on top of $25 billion of federal bailout money it took last fall. It then had to raise a $33.9 billion buffer after a Federal stress test.
Shares of the Charlotte, North Carolina-based bank have fallen 49 percent since the merger was announced a year ago.
HOLDING THE BOARD ACCOUNTABLE
The subpoenaed directors include those most likely to have been briefed the most about Merrill in November and December, the person familiar with Cuomo's probe said.
This is a sign that Cuomo intends to hold the BofA board accountable if it was involved in the decisions, or if it took a purely passive role and didn't perform its required function as a check on management, the person said.
The lead director at the time was O. Temple Sloan, a car parts executive who chaired the bank's executive committee and its compensation and benefits committee.
Other directors included CVS Caremark Corp Chief Executive Thomas Ryan, who led the corporate governance committee; and Jackie Ward, a software executive who led the asset quality committee.
Other executive committee members included Lewis, former FleetBoston Financial Corp chief Charles Gifford and former Liberty Mutual Group chief executive Gary Countryman.
After the Merrill purchase, the board grew to 19 directors. Ten have left since April, also including Sloan, Ward and Countryman. Five have joined, giving the board 14 members.
Bank of America shares closed up 46 cents, or 2.7 percent, at $17.25 on the New York Stock Exchange.
(Reporting by Jonathan Stempel; additional reporting by Elinor Comlay and Joe Rauch; Editing by Bernard Orr, Andre Grenon, Phil Berlowitz)