There is so much to love about Ken Lewis's $10 million settlement with the New York attorney general. For starters, the former Bank of America Corp. chief executive officer isn't paying the $10 million. Bank of America is.
Plus, Lewis still is allowed to publicly deny the allegations against him, which explains why his lawyer, Bruce Yannett of Debevoise & Plimpton LLP, was able to issue this statement on Business Wire yesterday: "Mr. Lewis consistently has made clear that the bank relied on experienced legal counsel -- both inside the bank and at a prestigious law firm -- with regard to what needed to be disclosed to shareholders."
That is a simple explanation of Lewis's defense and, for all practical purposes, a public denial of the fraud allegations against him. Neither Attorney General Eric Schneiderman nor his predecessor who originally filed the suit, New York Governor Andrew Cuomo, won a thing from Lewis. And now Lewis is free to tell anyone he wants that the state's case was groundless, without having to worry about some gag order barring him from exercising his First Amendment rights. God bless America.
This is how things should be when a government agency walks away from its own lawsuit without bothering to try proving its allegations in court. By contrast, the Securities and Exchange Commission's settlement boilerplate bars defendants from making any public statements "denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis."
As for Bank of America, which also was a defendant, Schneiderman is letting the company settle its portion of the case for $15 million, which is chicken feed for a too-big-to-fail bank with $2.2 trillion of assets.
Schneiderman can crow all he wants about how the settlement bars Lewis from serving as an officer or director of a public company for three years. But come on. The man is retired; he no longer sits on the boards of any public companies. Nor is there any reason to believe he planned to join one. The only thing Schneiderman got out of Lewis was window dressing. Schneiderman might as well have banned Lewis from playing quarterback for the Carolina Panthers, too. It would have meant about as much.
That said, some good came out of this case. Thanks to Cuomo's decision to investigate, the public learned that Ben Bernanke and Hank Paulson had threatened to remove Lewis from his job back in December 2008 if he did anything to disrupt Bank of America's plans to buy Merrill Lynch & Co.
Merrill had racked up several billion dollars of losses that Bank of America hadn't disclosed publicly. According to an April 2009 letter that Cuomo sent to Congress, Lewis said the decision not to disclose was based on direction from Paulson, who was Treasury secretary at the time, and Bernanke, then the Federal Reserve chairman.
Bank of America stayed mum about the losses until after the deal closed. The attorney general's office said the failure to disclose them sooner amounted to fraud.
But then Schneiderman gave up the fight this week in exchange for practically nothing. The SEC won't be doing anything on this front, either. Before she took over as head of the SEC last year, Mary Jo White represented Lewis in the New York lawsuit, back when she was a partner at Debevoise. (The SEC declined to pursue the case years ago, anyway.)
And talk about a small world: The general counsel of Bank of America during the events in question was a fellow named Tim Mayopoulos. Wouldn't you know it, the same day that Lewis and Bank of America settled with Schneiderman's office, we also learned that Bank of America agreed to pay $4.4 billion to Fannie Mae over some malfunctioning mortgage bonds the bank sold Fannie several years ago. And who is the CEO of Fannie Mae now? Tim Mayopoulos, of course.
Oh, what a tangled web.
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