Bank of America agreed to a $150 million settlement with the SEC -- five times the original amount -- the same day New York Attorney General Andrew Cuomo slapped the bank with a long-expected lawsuit for concealing crucial information from shareholders. There are three main accusations in the lawsuit. I'll tell you if I think they'll hold up:
1) Before the shareholder vote in December, BofA concealed Merrill's losses from shareholders.
2) After the shareholder vote, Bank of America forced the government to save the merger with taxpayer assistance after discovering losses only slightly higher than previously known.
3) BofA did not disclose Merrill's bonus timing or amount possibly on numerous occasions.
Let's begin with (1): that BofA purposefully concealed huge losses from shareholders. The timeline of events (see graph -->) makes this perfectly obvious. On Dec. 3, BofA revised Merrill's loses $2 billion. It considered this update "not material", using perhaps the most liberal interpretation of the word material I've heard. On Dec. 5, BofA shareholders, ignorant of this new internal forecast, approved the deal. Two weeks later, Merrill's quarterly loss increased by another $2-3 billion. More than "material," this revelation was so horrifying that CEO Ken Lewis went to Washington to void the deal entirely! To review: a $2 billion write-down was immaterial. Another $2 billion write-down was a dealbreaker. That looks very bad, indeed.