Bank of America Corp
In a court filing, the SEC also revealed that a bank investor, believed to be one of its biggest shareholders, asked several days before a shareholder vote on the merger whether the bank should try to back out.
Wednesday's filing came in response to U.S. District Judge Jed Rakoff's demand that the SEC and the largest U.S. bank provide more details about a proposed $150 million settlement to settle two SEC lawsuits over the merger.
Rakoff wanted to know whether anyone had urged disclosure prior to a December 5, 2008 shareholder vote about Merrill's rising losses, which reached $15.8 billion that quarter, or that Bank of America had authorized Merrill to pay $3.6 billion of bonuses.
He also questioned why the SEC viewed Mayopoulos' termination differently from New York Attorney General Andrew Cuomo, who this month filed a civil fraud lawsuit against Bank of America, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price over the merger.
That lawsuit said there were talks involving the bank as early as mid-November 2008 over whether to reveal Merrill's losses. Rakoff has suggested that perhaps Mayopoulos was fired because of concern over those losses.
Should Rakoff reject the settlement, the lawsuit over the bonuses would likely head for a trial beginning March 1. Rakoff in September rejected a $33 million accord.
GENERAL COUNSEL FIRED
The SEC maintained that Bank of America fired Mayopoulos in an attempt by Lewis to avert an imminent departure of Moynihan, then head of corporate and investment banking.
Bank of America had even drafted a press release to be sent out on December 12 to announce Moynihan's exit, and was planning to install then-Merrill Chief Executive John Thain as his replacement, the SEC said.
Citing Lewis, the SEC said Mayopoulos was terminated for reasons having no connection to his legal advice or any other aspect of his job performance. It added that several bank officers and directors, as well as e-mails and other communications, corroborated this account.
Moynihan replaced Lewis as chief executive when the latter retired from the bank at the end of 2009. Price is now Bank of America's head of consumer, small business and card banking.
Rakoff also asked for more details on the role of the bank's law firm Wachtell, Lipton, Rosen & Katz in deciding what to disclose about Merrill's losses.
The SEC said the last forecasted Merrill fourth-quarter loss that Wachtell knew about prior to the December 5 vote was $5 billion, as discussed with its lawyers in November.
It said partners Edward Herlihy and Nicholas Demmo agreed in a November 20 conference call that no further disclosure of losses was necessary.
Bank of America spokesman Bob Stickler and a Wachtell partner, Ted Mirvis, declined to comment.
Separately, the SEC in a footnote said that according to Price, several days before December 1, (2008,) an institutional investor in Bank of America, Cap World, inquired if Bank of America could renegotiate the deal.
According to the SEC filing, Cap World asked whether the bank could do this by invoking a material adverse change (MAC) clause because of Merrill's deteriorating finances.
Cap World is believed to be short for Capital World Investors, a part of Capital Research & Management in Los Angeles, a person briefed on the matter said. That firm oversees the giant American Funds mutual fund family.
Bank of America did not try to invoke the MAC provision until after the shareholder vote, when in mid-December it told federal regulators it wanted to back out of the merger.
The merger closed on January 1, 2009, and Bank of America soon got a $20 billion federal bailout, which it has since repaid.
The SEC and Capital Research & Management declined to comment.
In afternoon trading, Bank of America shares were up 48 cents, or 3.2 percent, at $15.64.
The cases are SEC v. Bank of America Corp, U.S. District Court, Southern District of New York, Nos, 09-06829 and 10-00215.
(Reporting by Jonathan Stempel; Additional reporting by Joe Rauch in Charlotte, North Carolina, Rachelle Younglai in Washington, D.C., and Aaron Pressman in Boston; editing by Gerald E. McCormick)