(Adds comments from lawyers for Lewis, Price)
By Karen Freifeld
NEW YORK, March 26 Kenneth Lewis, who turned
Bank of America Corp into the nation's largest bank but
also saddled it with enormous losses tied to mortgages, has
settled a lawsuit accusing him of deceiving investors about one
of his biggest acquisitions: Merrill Lynch & Co.
Lewis, the bank's chief executive from 2001 to 2009, will
pay $10 million to resolve claims by New York Attorney General
Eric Schneiderman that he misled shareholders and the government
in order to complete the merger, which closed on Jan. 1, 2009,
according to a copy of the agreement obtained by Reuters.
New York accused Lewis of concealing Merrill's mounting
losses from Bank of America shareholders prior to a Dec. 5, 2008
vote on the merger, and manipulating the U.S. government into
providing an extra $20 billion bailout by falsely claiming that
he would back out of the merger without the money.
As part of the agreement, Lewis, 66, will also be barred for
three years from serving as an officer or director of a public
company. A spokeswoman for Lewis's attorney said the bank would
cover his payment.
Bank of America will pay $15 million to resolve its portion
of the lawsuit by Schneiderman, who inherited the case from his
predecessor, Andrew Cuomo, now New York's governor. The bank
also will adopt reforms, such as creating a special committee to
review large acquisitions, according to a separate settlement
agreement obtained by Reuters.
Both payments would cover the costs of Schneiderman's
investigation, and neither Lewis nor Bank of America are
admitting wrongdoing or paying damages.
Nonetheless, the settlement with Lewis, who has kept a low
public profile since leaving Bank of America, would mark one of
the rare times that an executive at a major U.S. bank has been
held legally responsible in a case alleging wrongful conduct
linked to the 2008 global financial crisis.
"Individuals - not just corporations - should be held
accountable for their actions," Schneiderman said in a statement
confirming the settlements.
Attorney Bruce Yannett, who represents Lewis, said in a
statement that the former executive was pleased to put the case
"Mr. Lewis is proud of the role he played in helping the
U.S. banking system survive a very challenging period in its
history," the statement said.
"The bank relied on experienced legal counsel ... with
regard to what needed to be disclosed to shareholders," the
statement said, adding that the Merrill acquisition has proven
an "unmitigated success" for Bank of America.
A spokesman for Charlotte, North Carolina-based Bank of
America, now the second-largest U.S. bank by assets, declined to
A third defendant, former Bank of America chief financial
officer Joe Price, has yet to settle.
"We understand the bank and Ken Lewis ... have accepted
terms from the New York attorney general to put the matter
behind them," said Price's lawyer, William Jeffress. "Joe Price
made a different decision and we continue to defend the case."
Bank of America agreed to buy Merrill Lynch for an estimated
$50 billion on Sept. 15, 2008, the day before Lehman Brothers
Holdings Inc went bankrupt, in a hurried merger that won Lewis
praise at the time and likely prevented Merrill's demise.
Losses at Merrill, however, mounted ahead of a Dec. 5, 2008
vote by Bank of America shareholders on the merger, ultimately
reaching $15.84 billion in the fourth quarter of that year.
Despite the red ink, Merrill paid out $3.62 billion of
bonuses, and New York claimed that Bank of America misled
shareholders about the timing and criteria for the payouts.
The merger closed six months after Lewis had bought the
mortgage lender Countrywide Financial Corp. The two purchases
put great stress on Bank of America's balance sheet, and led to
an extra $20 billion federal bailout in mid-January, by which
time Merrill's losses also became known. The bank had already
taken $25 billion from the government. The $45 billion has since
Cuomo had sued Lewis, Price and Bank of America under the
Martin Act, the state's powerful securities fraud statute.
The lawsuit came after the U.S. Securities and Exchange
Commission had also sued Bank of America over its disclosures
about Merrill's losses and bonuses.
That case eventually settled for $150 million, an accord
that U.S. District Judge Jed Rakoff in Manhattan approved
reluctantly because it did not require Bank of America to
address whether it did anything wrong.
A separate $2.43 billion shareholder class action settlement
won final approval last year, and was a factor in Schneiderman's
decision in January to drop his damages claim.
New York's highest court ruled in 2008 that the attorney
general cannot pursue damages for shareholders who have settled
a class action, even if they are not made whole.
Bank of America was surpassed as the largest U.S. bank by
assets by JPMorgan Chase & Co in 2011.
The case is New York v. Bank of America Corp et al, New York
State Supreme Court, New York County, No. 450115/2010.
(Reporting by Karen Freifeld; additional reporting by Jonathan
Stempel; Editing by Bernard Orr)