Reactions To The BAC Matter

Today Bank of America was charged by the SEC for making materially false statements in the matters surrounding the Acquisition of Merrill Lynch. Ken Lewis told Congress on 12 feb 2009 he had “no authority” over the lavish bonuses Merrill Lynch gave out days before its taxpayer-financed takeover by BofA was finalized - but documents appear to show he signed off on the payouts.

The merger agreement that Lewis signed Sept. 15 specifically authorized bonuses of up to $5.8 billion to Merrill employees.

Mr. Lewis testified before congress that agreements to pay executive bonuses were in place prior to the acquisition. when questioned by Congresswoman Carolyn Maloney (D-Manhattan) he stated:
“My … involvement was very limited,” Lewis said. “[Merrill] had a separate board, separate compensation committee and we had no authority to tell them what to do; just urge them what to do. So we did urge.”The following is excerpted from a Wall st. Journal article by Kara Scanell:
The SEC alleges that Bank of America told investors in proxy documents on the Merrill acquisition that Merrill agreed it would not pay bonuses or other compensation to executives before the takeover deal was closed without Bank of America’s consent.
In truth, according to the SEC, Bank of America had already “contractually authorized” Merrill to pay $5.8 billion in bonuses.
Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement: “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.”

Instantaneously announced (ok 40 minutes later) was that the case was settled for $33million, without BAC admitting any wrongdoing, how does this happen? How is it possible this didn’t leak out in any way prior to the announcement? Also if this is settled without any admission of wrongdoing does Mr. Lewis get off the hook? Or are charges by the NY Attorney General and/or Congress likely to follow?
I’d like to see answers to all of these questions.

Also of note is that all this was released on up day. Surely that’s no coincidence, and then they announce all kinds of management changes. This has the look of a professional public relations firm pulling the strings. How many players in this made sure it occurred in the right way for BAC and the market. The SEC certainly had to be complicit as no way this was settled in 40 minutes. BAC surely is as they were awfully ready for the settlement and the announcement of the management changes.

Once again it has the appearance that the big guys get off easy and the little guy gets the shaft. It will be interesting to see if large share blocks traded just before the 2 announcements.

I am also amazed on a general market note that there was not a whole lot of reaction in the market to this news. Hardly a hiccup in fact.


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