Cuomo goes to court to force bonus details from Thain

John Thain speaks during the Wall Street Journal Deals and Dealmakers conference, in New York, June 10, 2008.

NEW YORK (Reuters) - New York State's top legal officer said on Monday former Merrill Lynch Chief Executive John Thain and Bank of America Corp obstructed and interfered with a probe into billions in executive bonuses, a hot-button issue in the recession.

Attorney General Andrew Cuomo filed a motion in court to try to compel Thain, ousted from Bank of America in January, just weeks after the firms merged, to provide more testimony following a February 19 deposition.

Thain failed to answer questions about the "determination and amount of individual bonus awards for all but five employees at Merrill Lynch," according to the filing in New York State Supreme Court. It said the five did not receive a bonus.

It said Thain, who played a central role in awarding $3.6 billion in bonuses before the merger, told lawyers for the attorney general that Bank of America instructed him not to discuss the 2008 bonuses.

In a statement, a Thain spokesman acknowledged the bank told him not to discuss details.

"Bank of America directed Mr. Thain not to discuss specific bonus details. Mr. Thain continues to cooperate fully with the attorney general's office," said the spokesman, Jesse Derris.

Representatives of Bank of America and Merrill were not immediately available to comment.

Cuomo's office alleged that Bank of America was obstructing its probe into bonuses that the attorney general has said made millionaires out of hundreds of employees at the Merrill brokerage amid huge losses.

Cuomo began questioning bonus plans in October after nine banks received $125 billion in U.S. Treasury funds. Cuomo has led the charge in challenging banks that awarded performance bonuses during a year when firms collapsed and taxpayers were asked to help prop up failing banks.

"Bank of America's instruction to a former employee without basis to refuse to answer questions about the determination and payment of particular bonus awards has no legitimate basis and obstructs the Attorney General's ability to exercise its obligations to investigate and enforce violations of New York's Martin Act," according to the court document.

"Accordingly, the Court should compel Mr Thain to answer the questions."

The Martin Act gives the state's top lawyer extraordinary power in securities litigation and fighting financial fraud.

Bonus payments at Merrill were typically set and paid after the end of the calendar year. In 2008 it was set by December 8 before Merrill knew year-end results, according to court papers.

Two weeks ago, Cuomo accused Merrill of "secretly" accelerating bonus payments, giving at least $1 million to each of nearly 700 employees, even as the brokerage lost about $27 billion during the year.

The attorney general's office said it believes Merrill's pretax losses turned out to be approximately $7 billion more than it anticipated when it set the bonus pool. Aftertax losses were at least $5 billion more than anticipated, the office said.

"Merrill Lynch's bonus pool was not altered to reflect these multi-billion dollar losses, even though results are supposed to be a key component of setting bonus pools," according to the court document.

Last week, Cuomo subpoenaed Bank of America Chairman and CEO Kenneth Lewis in its investigation of whether the bank broke state law by withholding information from investors. He also issued subpoenas to the bank's chief administrative officer, J. Steele Alphin, and human resources executive Andrea Smith.

(Additional reporting by Jonathan Stempel and Elinor Comlay; editing by Phil Berlowitz and Jeffrey Benkoe )