Cuomo Takes on The Money Party
Bank of America Looks Like First of Many
"This merger (Bank of America and Merrill Lynch) is a classic
example of how the actions of our nation’s largest financial
institutions led to the near-collapse of our financial system," said
Attorney General Cuomo. "Bank of America, through its top management,
engaged in a concerted effort to deceive shareholders and American
taxpayers at large. This was an arrogant scheme hatched by the bank’s
top executives who believed they could play by their own set of rules.
In the end, they committed an enormous fraud and American taxpayers
ended up paying billions for Bank of America’s misdeeds." (Image)
Andrew Cuomo's complaint filed in the New York Supreme Court, County
of New York against the Bank of America and two former top executives
has the potential to push that too big to fail entity off the edge of a very steep cliff. The charges of massive fraud are based on a compelling and exhaustive filing on February 4.
A trial will likely involve testimony by the current Bank of America CEO and President Brian Moynihan against defendants Kenneth Lewis, the bank's former CEO and board chairman, former chief financial officer (CFO) Joseph L. Price, and the bank itself. Price is currently in charge of BofA's credit card division.
The complaint charges fraud before, during and after the bank's
merger with struggling brokerage firm Merrill Lynch in late 2008. The
fraud cost bank shareholders and citizens billions of dollars. This is
the first major case brought against our nation's largest financial institutions. These are the same financial institutions and executives that nearly destroyed the economy.
Cuomo's press release states clearly that Lewis and the bank are
examples of a much larger problem. It appears to be a leading indicator
of future actions by the New York attorney general. Why else would
Cuomo have generalized about institutions (plural) in his statement about this particular case?
If Cuomo succeeds in taking down one of the toughest guys on the
block, he'll make a point to the rest of the crew: you're next, get
ready to cooperate. Many of the key perpetrators are located in Cuomo's
jurisdiction, although Bank of America (BofA) is headquartered in
Charlotte, North Carolina. Clearly, there are others in line for some
New York style law and order.
Cuomo is joined in this action by Niel Barofsky,
Special Inspector General for the federal government's Troubled Asset
Relief Program (TARP). TARP provides the billions in bailouts to bogus
bankers and corporations. There's a credit line of $23.7 trillion should it be needed for even more bailouts. Ever wonder why you can't get a loan? They've taken all the money.
Charges and remedies
The bank and the two named executives are charged with failing to
inform the bank's board of directors and shareholders of the major red
ink on Merrill Lynch's books prior to the merger. CEO Lewis, CFO Price,
and other BofA officers and professionals chose to hide $16 billion of
Merrill Lynch known pre tax losses prior to board approval. That's
fraud, plain and simple. Complaint filed by New York Attorney General, Feb 4, 2009
The complaint also charges that the same parties with strong arming
the federal government for $20 billion to cover Merrill's debt by
threatening to back out of the merger if the money wasn't forthcoming.
Then Secretary of the Treasury Henry Paulson and Fed Chairman Ben
Bernanke had encouraged BofA to acquire Merrill, apparently without a
rider that BofA would get billions in the process to cover their
fraudulent business practices.
The lawsuit seeks two overriding remedies. The two named defendants
and the entire Bank of America are enjoined from "any conduct,
conspiracy, contract, or agreement, and from adopting or following any
practice, plan, program, scheme, artifice or device similar to, or
having a purpose and effect similar to, the conduct complained of
In addition, the defendants and the bank are to "disgorge all gains,
pay all penalties and pay all restitution and damages caused, directly
or indirectly, by the fraudulent and deceptive acts complained of
These and the other remedies promise a degree of justice and, quite
frankly retribution for the mess caused by the defendants. An unnamed
and unintended remedy could be serious damage to the good will value
of the Bank of America. The spectacle of a conviction of the bank and
a former CEO and current division head for fraud would have a
devastating effect on public confidence. Too big to fail may be a notion upended once and for all by a guilty verdict.
Witness Lineup – It's Bank of America versus Bank of America
Andrew Caffrey and Todd Wallach of the Boston Globe,
hinted that Bank of America president and CEO, Brian T. Moynihan will
be a key witness for the prosecution. The Globe article notes that the
current BofA chief, "who was involved in negotiations (for the Merrill
acquisition) as the bank’s general counsel, was not charged." Later in
the same article, they quote Cuomo as saying, Moynihan, "has been
candid with our office with respect to the roles he played after
becoming general counsel."
Put simply, Moynihan was central to the merger, knew about the
fraud, participated in it, but didn't blow the whistle. All of that is
established in Cuomo's complaint. He cooperated with Cuomo and wasn't
indicted. His name will be at the top of the attorney general's witness
list, no doubt.
As if that's not bad enough for the bank, defendant Joseph L. Price,
former CFO, is currently heading up Bank of America's credit card
Should Moynihan testify, we'll see BofA's current CEO helping Cuomo
convict his predecessor of fraud. Moynihan's testimony will also argue
for a conviction of his current head of credit card operations. Since
Bank of America is charged, we'll also see its current CEO plus the
“Relevant Parties” described in the complaint testifying that the
corporation was also guilty of fraud. Many of the 35 Relevant Parties
named are current or former BofA executives or board members.
Other key witnesses may include Federal Reserve Chairman Ben
Barnanke and former Treasury Secretary and TARP architect Henry
Paulson, They encouraged the Bank of America - Merrill Lynch merger as
part of their efforts to prevent an alleged financial meltdown at the
end of the Bush administration..
Charlie Gasparino of the Daily Beast reports that the defense counsel, former U.S. Attorney Mary Jo White,
wants the case dismissed. If not, Gasparino says that "one person close
to the defense” claims that White will call Paulson and Bernanke to
testify. Cuomo has the facts and obviously believes Paulson and
Bernanke on the sequence of events leading to these charges. Absent a
“Perry Mason” moment by the defense, their testimony holds no surprises
or benefits for the defendants. Mary Jo White has little or nothing at
this point other than bluster.
Justice for the people?
It's been ten years since Congress and President Clinton freed Wall Street
and the major banks to open a big casino on Wall Street. That resulted
in ruinous schemes like the real estate bubble. It's been five years
since Alan Greenspan
told citizens to get an adjustable rate mortgage, cash out the equity
in their homes, and jump into the stock market. It's been over a year
since Wall Street and the big banks nearly ruined the economy, cost
citizens jobs, savings, retirements, and countless other hard earned
gains through a variety of no-win schemes sold as solid investments.
Nothing of any importance has been done to regulate the financial
industry since the bailouts. Prior to the Cuomo-Barofsky charges, there
have been no major cases brought against the perpetrators of our
Hopefully, New York Attorney General Andrew Cuomo started what will become an era of accountability for those at the very top. This should be about more than just one case. It's an example of top down accountability.
May the bank, Mr. Lewis, and Mr. Price have the speediest of trials
and the absolute maximum penalties should they be found guilty.
They knew exactly what they were doing every step of the way.
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Next Monday - Cuomo's Lock Down – The Case in Detail