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Bank of America, Lewis and Price Answer Cuomo's Charges
Both the Securities and Exchange Commission and New York State Attorney General Andrew Cuomo sued Bank of America (BAC) over its takeover of Merrill Lynch, claiming it failed to disclose what terrible shape Merrill was in before shareholders voted on the deal. The two suits, however, painted sharply conflicting pictures of Bank of America and its executives.
According to the SEC, Bank of America didn't intentionally deceive anyone. According to Cuomo, Bank of America, then-CEO Ken Lewis, and then-CFO Joe Price did. The two sets of "facts" were so different as to nearly derail the SEC-Bank of America settlement a second time and led the SEC to charge that Cuomo's version "didn't derive from any evidence."
Yesterday, Lewis, Bank of America and Price all filed answers to Cuomo's charges, essentially claiming the same thing. Lewis' filing is the most aggressive:
"Some have looked to assign blame for every aspect of the financial crisis, even where there is no evidence of misconduct. This case is a product of that dynamic and does not withstand either legal or factual scrutiny.... The Attorney General alleg[es] without basis a conspiracy to mislead the public and shareholders. The Attorney General's theory is both implausible and internally inconsistent."
Lewis's filing continues in the same vein, saying Cuomo's complaint is filled with "complete distortions," based on an "often nonsensical version of events". Ouch.
After excoriating Cuomo, Lewis' filing in standard manner addresses and denies each of Cuomo's charges in turn. Lewis also raises eight affirmative defenses. For each defense, Lewis is saying: "Well, even if everything Cuomo says is true -- and I'm not saying it is -- I still can't get in trouble for it because [insert affirmative defense]."
The affirmative defenses amount to saying that Cuomo's "facts" don't add up to a case (defense 1); he doesn't have the legal authority to bring the charges (defenses 2, 4 and 7); he waited too long to sue (defense 3); and, to at least some extent, the charges are blocked for other reasons (defenses 5, 6 and 8).
Lewis' filing is available from The New York Times' website (among other places). Part 1 includes the rhetoric shredding of Cuomo and the denials of the charges; part 2 includes more denials and the affirmative defenses. The Times also has Cuomo's complaint handy for comparison.
Unsurprisingly, Cuomo's office stands by its complaint. The Wall Street Journal suggests that Bank of America might settle with Cuomo at some point but that Lewis is likely to force Cuomo to prove his charges at trial -- that is, if there's a trial. Cuomo is likely to be elected New York governor in November, and whomever the next attorney general is may not be interested in prosecuting Lewis.
I hope the case does come to trial. I'd like a thorough airing of the evidence so we all can see whether Cuomo or Bank of America/the SEC has the correct view of what went down. Even if the case does go to trial, it won't happen for quite some time, so for now, it's just wait and see.