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Former Merrill CEO Thain Subpoenaed Over Bonuses

New York Attorney General Andrew Cuomo has subpoenaed former Merrill Lynch CEO John Thain for his testimony on circumstances surrounding the $4 billion paid in bonuses to Merrill Lynch executives in December, according to sources familiar with the situation.

Meanwhile, CNBC has learned of a purge at BofA of Thain's inner circle. Noel Donohue, Co-Head of Risk, Margaret Tutweiler, Head of Communications and Public Affairs and Mary Lee, Thain's chief of staff have all been let go. Tutweiler was a former spokesperson at the U.S. State Department during the presidency of the first George Bush and was described as particularly close to Thain.

As for the subpoenas, Cuomo's office is focusing on allegations that the timetable for the bonus approval was

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accelerated given the $15 billion fourth-quarter loss at Merrill, sources said.

Thain was dismissed from Bank of America last week following the revelation of the huge and unexpected loss at Merrill, which completed a hastily arranged merger with Bank of America on Jan. 1.

Eyebrows were also raised by the payment of bonuses to Merrill executives shortly before the merger closed and hefty expenses for redecorating Thain's office a year ago.

Bank of America is receiving money from the federal government under the Troubled Asset Relief Program intended to help banks stay afloat amid the ongoing financial crisis. Questions have been raised about the propriety of the bonus payments given that federal support and the losses incurred at the brokerage.

In an interview with CNBC, Thain said the brokerage firm's huge fourth-quarter losses resulted from investments made by his predecessor and that Bank of America was well aware of the growing losses before the merger closed.

He also stood by the bonuses paid out to top executives at Merrill Lynch, saying even in troubled times you have to "pay" to keep top talent. He offered to reimburse the company for his office makeover. (Read more about his comments here).

In addition to Thain, Cuomo has also subpoenaed Bank Of America's chief administrative officer, J. Steele Alphin, for his testimony on what he knew about the bonus payments and timing. Sources say the attorney general is taking that action because Thain is claiming Alphin knew about the timing of the payments.

AG's office is working with the special inspector general for the federal Troubled Asset Relief Program, Neil Barofsky, who has auditing powers over TARP recipients like BofA , sources said.