George S. May Business Blog

Bank of America to hand over legal documents from the Merrill purchase — Andrew Cuomo victorious yet again

Well, it is official; Andrew Cuomo gets what he wants. NY Attorney General, Andrew Cuomo has been pressing B of A to to turn over a set of documents that contain the legal advice the bank received in respect to its purchase of Merrill Lynch & Co. Due to the attorney-client priviledge B of A has, the bank had refused in the past. However, reports are that Bank of America’s board decided Friday to waive those priviledges. The report from the Associated Press is below:

SAN FRANCISCO (AP) — After months of resistance, Bank of America Corp. plans to turn over documents showing legal advice it received on its purchase of Merrill Lynch&Co. to the office of the New York attorney general, a person familiar with the matter said Monday.

BofA’s board decided on Friday that it would waive its attorney-client privilege and hand over the papers, the person said, speaking on condition of anonymity because the New York AG’s investigation is ongoing.

New York Attorney General Andrew Cuomo’s office is seeking to determine whether BofA misled shareholders about $3.6 billion in bonuses paid to Merrill employees and the investment bank’s mortgage lending losses, as well as whether BofA failed to tell shareholders that it considered backing out of the deal before it closed on Jan. 1.

The attorney general’s office — and a U.S. district judge who is overseeing a separate Securities and Exchange Commission case — have questioned whether the bank knowingly hid details about the acquisition from shareholders ahead of a vote to approve the deal. Thus far, the bank had declined to provide details on legal advice it received on its disclosures to shareholders.

But in a letter to New York Attorney General Andrew Cuomo obtained by The Associated Press, Bank of America said that following a “very constructive” meeting Oct. 6 between the bank and the AG’s office, it “reconsidered its position” with regard to waiving privilege, “in the hope of furthering a resolution.”

A spokesman for Charlotte, N.C.-based BofA could not immediately be reached for comment late Monday.

Bank of America agreed to acquire Merrill Lynch in a hastily arranged deal in September 2008, at the height of the financial crisis, just as Lehman Brothers was preparing to file for bankruptcy.

When it asked shareholders to approve the takeover, Bank of America said Merrill would not pay year-end bonuses without its consent. But in August, the SEC said in court papers that BofA had already authorized Merrill to pay up to $5.8 billion in bonuses and didn’t share that information with shareholders.

Merrill paid employees $3.6 billion in bonuses for 2008, a year in which it lost $27.6 billion, a record for the firm. Those losses hurt Bank of America, one of the largest recipients of U.S. government bailout funds. The bank received $45 billion in federal aid, including $20 billion to help offset Merrill’s losses.

U.S. District Judge Jed Rakoff in Manhattan last month rejected a $33 million settlement between the SEC and Bank of America, saying the SEC’s accusations of inadequate disclosure by the bank over the bonuses must go to trial.

The SEC has said it was impossible to establish whether Bank of America executives knowingly violated securities laws because the terms of the bank’s takeover of Merrill — including the bonus payments — were laid out in documents prepared by outside attorneys for the two companies.

Bank of America was represented in the Merrill negotiations by New York-based law firm Wachtell, Lipton, Rosen&Katz. Merrill Lynch was represented by Shearman&Sterling LLP.

The attorneys were mainly responsible for drafting the Bank of America disclosure filings. Bank of America has maintained that its disclosures to shareholders complied with securities laws.

Company executives involved in the legal correspondence include Bank of America’s general counsel, Timothy Mayopoulos, who left BofA in December 2008, shortly before the Merrill deal closed. Brian Moynihan, the bank’s former president of global corporate and investment banking, took over the role. He is also head of the company’s largest division, consumer and small business banking.

In its letter to the AG’s office, Bank of America said it will waive privilege with respect to communications about what bonus-related disclosures would be made in, or omitted from, the joint proxy statement issued by BofA and Merrill Lynch on Nov. 3, 2008 in connection with their merger. It will also waive privilege regarding BofA’s consideration about whether to back out of the deal under a material adverse change clause, and the disclosure or nondisclosure of Merrill’s 2008 fourth-quarter financial performance and potential goodwill impairment charges before the acquisition’s Jan. 1 closing.

Lastly, BofA said in the letter that it will waive privilege pertaining to its communications with the Federal Reserve Board, the Treasury Department and other government officials regarding federal aid in connection with the Merrill Lynch takeover.

Former Treasury Secretary Henry Paulson acknowledged in testimony to Congress in July that he pressured Bank of America CEO Kenneth Lewis to proceed with the deal despite Merrill’s mounting financial losses. At one point during the discussions, Paulson pledged government aid to help Bank of America absorb some of the losses from acquiring Merrill.

BofA said in the letter it will not waive privilege or produce documents created before Sept. 12 or after Jan. 16, the time period which it says is of interest to Cuomo’s office.

The bank also said that since it has reconsidered its position with respect to the New York AG’s investigation, it will also produce privileged information to federal regulators and to Congress.

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