Bank of America CEO Lewis leaving by year’s end

NEW YORK

Ken Lewis, the embattled CEO of Bank of America Corp., is leaving the company, succumbing to nearly a year of strife that followed his company’s acquisition of Merrill Lynch & Co.

The bank said in a statement late Wednesday that Lewis, 62, would retire as CEO and also leave the company’s board by the end of the year. The company said his successor will be selected by the time he steps down Dec. 31.

The news, coming after shareholders had stripped Lewis of his chairman’s title earlier this year, wasn’t surprising because of the heavy pressure he came under after the Merrill deal. Lewis had said he would stay on as CEO until after the company’s financial problems were resolved, a process expected to take several years.

However, with the bank also under heavy criticism from government officials, Lewis was increasingly seen as vulnerable.

Since the Merrill deal closed Jan. 1, it was learned that the investment bank with the knowledge of Bank of America executives, gave billions of dollars in bonuses to employees even as it asked for more bailout money from the government. The deal was forged a year ago at the height of the financial crisis.

Jennifer Canada, a spokeswoman for North Carolina Attorney General Roy Cooper, said the state still has an ongoing investigation into Bank of American but that she wasn’t aware of any other probes.

Bank Of America

Hiding Behind Its Lawyers:

Rep. Towns

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NEW YORK (AP) — Bank of America Corp. was facing a deadline Monday to turn over additional information about its acquisition of Merrill Lynch, this time to a Congressional committee.

It was not immediately known if Bank of America complied with the 12:00 p.m. EDT deadline to provide details about when the bank was aware of mounting losses and bonus payments at Merrill, as well as when it struck a deal with the government to receive additional bailout money to help support the acquisition.

In a letter to the bank on Friday, Rep. Edolphus Towns, D-N.Y., said Bank of America failed to provide key information regarding its knowledge of growing problems at New York-based Merrill to shareholders. Towns, who is chairman of House Committee on Oversight and Government Reform, said in the letter sent Friday that Bank of America was hiding behind attorney-client privilege, which Congress can refuse to recognize during its investigations.

Bank of America spokesman Scott Silvestri said, “We are working with the committee on a plan to provide them with the information they need.”

Silvestri declined to comment on whether or not the bank turned over any documents on Monday, but said Anne Finucane, a member of Bank of America’s executive management team, will meet with Towns Tuesday to discuss the matter.

Charlotte, N.C.-based Bank of America has come under heavy scrutiny from state and federal regulators, and politicians, about its hastily arranged acquisition of investment bank Merrill Lynch & Co. last fall. Bank of America agreed to buy Merrill at the peak of the credit crisis last fall as another investment bank, Lehman Brothers, was collapsing.

Regulators have questioned whether Bank of America failed to properly disclose details about problems at Merrill leading up to the deal closing on Jan. 1.

New York Attorney General Andrew Cuomo has been investigating the acquisition for much of the year and is planning to file fraud charges against some of Bank of America’s top executives in the coming weeks. He also recently subpoenaed five board members of the bank.

The Securities and Exchange Commission last month reached a settlement with Bank of America over its failure to tell shareholders about the bonus payments, though the bank did not acknowledge any wrongdoing as part of the settlement. A judge, however, rejected the $33 million agreement last week in a scathing decision, saying the SEC did not thoroughly investigate the case. The federal judge sent the case to trial, which is scheduled to begin Feb. 1 in New York.

Losses at Merrill forced Bank of America to receive a second round of government bailout money in January after the deal was completed. Bank of America has been among the banks hardest hit by the economic downturn and, along with Citigroup Inc., one of the largest recipients of government aid.

Bank of America has received $45 billion from the government’s Troubled Asset Relief Program, including $20 billion to help absorb Merrill losses. The government also agreed in January to a loss-sharing deal to cover hundreds of billions of dollars in risky investments Bank of America was absorbing in the Merrill acquisition.

Shares of Bank of America fell 35 cents, or 2 percent to $17.28 in afternoon trading.

Read more at: http://www.huffingtonpost.com/2009/09/20/congress-aims-to-force-bo_n_292931.html

By Joe Bel

NEW YORK (MarketWatch) — The multiple probes bearing down on Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 17.17, -0.33, -1.89%) could make it difficult for Chief Executive Ken Lewis to keep his job.

Lewis, 62, faces high-profile investigations into the bank by Congress, the Securities and Exchange Commission, and New York Attorney General Andrew Cuomo. Lewis faces accusations from lawmakers he misled investors about year-end bonuses paid to employees at Merrill Lynch & Co. before Bank of America purchased the teetering Wall Street firm late last year.

Shareholders have already stripped Lewis of his role as chairman amid criticism over the Merrill deal. Some analysts believe Lewis could lose control of the nation’s biggest bank.

“Eventually, for the best interest of BofA and a matter of his own future, Ken will fall on his sword and bow out of the situation,” St. John’s University law professor Anthony Sabino speculated. “I’m not optimistic about his future.”

Scott Silvestri, a Bank of America spokesman, said, “The board has consistently expressed its support for Ken. There have been no charges, and we do not see any basis for charges against members of the management team or the company.”

There’s already some indication that BofA could be preparing for Lewis’ departure. As part of a broader review, the bank’s board of directors recently laid down a new succession plan.

There are possible candidates on Bank of America’s bench to replace Lewis. Among the most bandied-about names are Brian Moynihan, who heads the bank’s global corporate and investment bank; Thomas Montag, who heads global markets for the bank; and Sallie Krawcheck, who runs the bank’s wealth management operations.

Montag is a former Merrill executive. Bank of America hired Krawcheck to lead its thousands of financial advisers after her stints at Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 4.52, 0.00, 0.00%) and its brokerage subsidiary Smith Barney.

Cuomo’s office is weighing possible civil charges against Lewis and another top bank officer after citing four alleged failures to tell shareholders material information related to the Merrill takeover. Bank of America has written to Cuomo that allegations of wrongdoing by the bank are “spurious.” Cuomo has subpoenaed five BofA board members to testify as part of the investigation; Lewis first provided testimony to Cuomo’s investigators regarding Merrill’s bonuses in February.

Although Cuomo is not reported to be eyeing criminal charges, analysts believe even civil charges against Lewis could cripple the CEO’s ability to hang on to power.

Moreover, Lewis could soon tangle again with government regulators.

The SEC has already leveled civil charges against BofA over its handling of the Merrill bonuses. Although Bank of America recently announced a settlement with the SEC over the matter, U.S. District Judge Jed Rakoff rejected the deal. He said the agreement punished shareholders rather than the bank’s decision makers.

Lewis was pressured by high-level government regulators, including then-Treasury Secretary Henry Paulson, to go through with Bank of America’s purchase of Merrill even as losses at Merrill mounted last December. To keep the deal together, regulators quietly agreed to absorb some of Merrill’s future losses; the bank revealed that agreement weeks later.

Bank of America has said it made all the appropriate disclosures to shareholders.

The SEC said it could add more charges to a trial that’s scheduled to open March 1.

On Tuesday, a top BofA official is meeting with Rep. Edolphus Towns, D-N.Y., to divulge more details about the acquisition. Towns is chairman of the House of Representatives’ Committee on Oversight and Government Reform and is leading an investigation. Bank of America has said it can’t fully comply with the investigation without violating attorney-client privilege.

The bank failed to meet a deadline Monday to turn over documents to the committee.

Lewis has not stood idly by. He’s met with Treasury Secretary Timothy Geithner in recent weeks, and the bank agreed to pay the federal government $425 million to cancel an unused guarantee of Merrill’s assets.

Bank of America also said it wants to reduce its reliance on federal support after receiving two bailouts amid the financial crisis. The bank wants to repay $20 billion of the $45 billion it received in rescue funds.

Bank of America’s shares closed Tuesday up 36 cents, or 2.1%, at $17.61 but in recent late trading shares are down to $17.60.

SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
09-Civ.-
against-
COMPLAINT
BANK OF AMERICA CORPORATION,
Defendant.

http://www.sec.gov/litigation/complaints/2009/comp21164.pdf

By MARCY GORDON (AP) –

WASHINGTON — A judge’s condemnation of the Securities and Exchange Commission in rejecting its $33 million settlement with Bank of America over bonuses at Merrill Lynch dealt a stinging rebuke to an agency seeking to mend its image after its failure to detect Bernard Madoff’s fraud scheme.

The SEC must weigh its options after the judge’s finding that it was too gentle with one of the biggest U.S. banks. It must also struggle anew to gain credibility for its enforcement efforts. The ruling also marks a setback for the SEC’s relatively new chairman, Mary Schapiro.

The agency may be forced to mount a court fight against Bank of America over one of the touchiest issues of the financial crisis — executive pay.

The case stemmed from revelations that Merrill, with the knowledge of Bank of America executives, paid employees $3.6 billion in bonuses just before the bank acquired Merrill on Jan. 1.

In his ruling Monday, U.S. District Judge Jed Rakoff of New York said the SEC’s accusations of inadequate disclosure by Bank of America over the bonuses must now go to trial. Rakoff earlier had ordered the SEC to explain why it didn’t pursue charges against individual Bank of America executives.

The prospect of a trial is “putting the agency in a very tough situation,” said Ross Albert, a former SEC senior special counsel and federal prosecutor who is now a private attorney in Atlanta.

Albert said the agency may have to go to trial — which “it’s not clear what it would accomplish at this point” — or possibly charge individual Bank of America executives.

Schapiro, appointed by President Barack Obama, took over the agency in January — a month after the Madoff scandal and several months after the financial crisis erupted. She installed a new enforcement director and took other steps with an eye toward strengthening the pursuit of fraud and protecting investors.

“The buck stops with her,” Albert said. “She is the senior official … and anything that reflects badly on the agency is going to reflect badly on her.”

Rakoff called the proposed settlement with Bank of America Corp. a breach of “justice and morality” and ordered the case to trial on Feb. 1. Some saw the ruling as a defeat for Schapiro personally as well as for the agency.

“The first thing Mary Schapiro was trying to do when she came in” was to restore the credibility of the SEC’s enforcement division, said Barbara Roper, director of investor protection at the Consumer Federation of America. “This has to be seen as a pretty serious setback in that area.”

Normally, the five SEC commissioners, including Schapiro, vote to approve or reject settlements with companies or individuals. The agency’s enforcement staff negotiates the deals and recommends how the commissioners should vote. Their votes aren’t made public.

In seeking approval to buy Merrill, Bank of America told shareholders that Merrill wouldn’t pay year-end bonuses without Bank of America’s consent. But in its civil complaint filed in August, the SEC said Bank of America had already authorized Merrill to pay up to $5.8 billion in bonuses and didn’t share that information with shareholders.

Charlotte, N.C.-based Bank of America agreed to pay the $33 million in the settlement without admitting or denying wrongdoing. The bank has said it didn’t violate disclosure rules but wished to avoid litigation with the SEC at a time of market uncertainty.

Rakoff, in his ruling, found that the settlement “suggests a rather cynical relationship between the parties.”

“The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth,” he wrote.

The SEC now must consider its next moves.

The agency could seek to renegotiate the deal with Bank of America. But it may be hard to find revised terms that would satisfy Rakoff if bank executives weren’t individually charged. Some legal experts said the SEC can’t appeal his ruling. But it could consider filing a petition to overturn it — a maneuver used in extraordinary circumstances when a judge is alleged to have exceeded his authority.

Or the SEC could go to trial against Bank of America. Rakoff’s setting of a trial date could be aimed at prodding the parties to come back with a new settlement or for the SEC to charge bank executives.

The SEC wasn’t tipping its hand as to its likely next move.

“We believe the proposed settlement properly balanced all of the relevant considerations,” spokesman John Nester said in a statement Monday. “We will carefully review the court’s most recent order.”

While judges have on occasion sent back proposed settlements to the SEC and ordered them to be renegotiated, throwing an accord out entirely is highly unusual.

Rakoff’s ruling “raises really important questions about what the SEC enforcement process should be doing and should be accomplishing,” said Sam Buell, who was a member of the Justice Department’s task force in the Enron prosecution and is now a visiting law professor at Duke University.

At the same time, the rejection of the Bank of America accord could hang over the SEC as its enforcement attorneys seek to negotiate new settlements with other companies.

James Anderson

CISSP, CISM, Information Risk Management Expert

10 Months

Into Red Flags

for Banks…

How’s It Going?

Banks and other regulated financial institutions have subject to full enforcement of new Red Flags regulations since November 1, 2008. Enforcement for non-bank organizations has been delayed until November 1, 2009. It would be very useful for banks to post how they have complied with Red Flags so far. How have existing policies requiring customer information protection, PATRIOT Act CIP, etc come into play if at all? What has been your approach to Red Flags compliance? Using any special tools? General level of difficulty? Etc. Etc.

Despite the fact that regulated financial institutions have been already subject to full enforcement my guess and my experience is that there is still tremendous confusion over the requirements and their implementation. In the works we have done with banks I have not seen any significant documentation or information on the implementation of Red Flag policies and procedures. Additionally, I have not heard anything about the appointment of Red Flag Administrators or the conducting of Red Flag employee training from employees of those banks. The one area that I did see some indication of the adoption of Red Flag concerns among banks is in the area of wholesale lending. Prior to the previously articulated, August 1, 2009 deadline many of our mortgage brokerage clients received notofcations from Banks that they would be required to affirm their compliance with the the FTC’s Red Flag Policies after the commencement of the enforcement date in order to continue the business relationship. Unfortunately, with the government’s continuous delays, we have seen a complete relaxation of client concerns due to the belief that if the government can’t hold true to their publicized enforcement dates on so many occassions then how can they realistically expect regulated entitities to comply. While I can’t say I blame them, I think a failure to comply by the enforcement date is a game of Russian Roulette.