Old Ken Lewis deposition may come back to haunt Bank of America
An old deposition of former Bank of America (BAC) CEO Ken Lewis could play a major role in ongoing shareholder litigation. Another case with allegations similar to disclosures made in the deposition was filed this week by Schwab funds. The group is now suing Ken Lewis and BofA for not making material disclosures prior to the Merrill Lynch acquisition. The interchange Lewis had in a deposition recorded at the New York attorney general's office two years ago is likely to be part of ongoing discussions about how much influence the Federal Reserve and Treasury Department had over Lewis and the Bank of America merger. The deposition has Lewis admitting he made note of Merrill's losses before the merger. However, he suggests Fed and Treasury officials were not keen on BofA backing out of the transaction, and they made their wishes known. In the transcript of the deposition by U.S. Legal Support Inc., Lewis noted that BofA considered filing a claim to end the merger with Merrill Lynch after new losses at the financial advisory firm became apparent. The exchange shows Lewis running through the events leading up the merger, including talks he had with then Treasury Secretary Hank Paulson and central bank officials who were persistent on BofA acquiring Merrill. Earlier this month, media reports said shareholders plan to file suit claiming BofA's leadership failed to disclose some $12 billion to $15 billion in losses at Merrill before it was acquired by the banking giant. Analysts following the case point to one exchange in the deposition of Lewis, where the issue of disclosing the Merrill Lynch losses comes up between Lewis and the AG's office. When asked if he had some type of agreement with government officials on BofA receiving bailout funds to help with Merrill-related issues, Lewis said Paulson called him and said, "First, it would be so watered down, it wouldn't be as strong as what we were going to say to you verbally, and secondly, this would be a disclosed event and we do not want a disclosable event." The examiner then asked, "When you say disclosed event, he means a disclosed event for the corporation?" To that, Lewis replied, "Correct — well, yes." Lewis goes on to say, "They did not want, and they didn't think it was in our best interest, to have anything announced until you can announce the whole thing, and the promise was to get it announced before or during that earnings." The interviewer then asked Lewis, "They didn't think it was in the best interest if you announced to your shareholders what you were negotiating?" Lewis replied, "No. They thought it was in our best interest for the deal to be completed and to be able to say, 'This is what we have, as opposed to prospectively." Write to Kerri Panchuk.