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Bank of America sued over Merrill Lynch takeover

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by Kay Mitchell
Bank of America sued over Merrill Lynch takeover

US banking giant, Bank of America (BoA), has been sued by the New York Attorney General, Andrew Cuomo, for defrauding investors and the Government over its takeover of Merrill Lynch.

BoA, and two of its senior executives, Ken Lewis and Joseph Price, have been accused of “enormous fraud” on taxpayers and shareholders over the takeover in 2008.

In September 2008, Merrill Lynch was quickly sold to BoA following the collapse of Lehman Brothers.

However, the takeover was criticised and, in particular, Ken Lewis (former chief executive of the bank), was blamed for the poor handling of the acquisition – which was finalised at the start of 2009.

Lewis and Price have been accused of concealing a $16.2 billion pre-tax loss at Merrill Lynch from shareholders, then deceived the Federal Reserve and the Treasury in order to receive a $20 billion bailout.

Mr Cuomo comments: “This merger is a classic example of how the actions of our nation’s largest financial institutions led to the near-collapse of our financial system.”

He continued: “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,” added Mr Cuomo.

Yesterday, the Securities and Exchange Commission (SEC) said that BoA had agreed to pay $150 million to settle complaints over its handling of the merger. The funds will be distributed to shareholders.

Last month, the bank posted a net loss of $194 million in the three months to December, against a loss of $1.8 billion in the same period a year earlier.

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News posted: February 5, 2010

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