Criticism of Bank of America CEO Ken Lewis mounted after Merrill, with the knowledge of other executives, gave $3.6 billion in bonuses to its employees even as the government was doling out more rescue money. The bonuses, which would normally have been paid in January, were paid out in December ahead of the deal's Jan. 1 completion.
Timothy Mayopoulos, who was general counsel before being abruptly fired last December, said he advised Bank of America executives that the bank couldn't make a case that Merrill's huge losses provided legal grounds for it to back out of the merger deal.
"The government did not elbow its way into this transaction," Towns said. June testimony by Lewis and documents obtained by the panel show it was the bank that forced the merger, he added.
Brian Moynihan, president of consumer and small-business banking, who took over as general counsel after Mayopoulos' firing, testified that "I did not feel pressured at any point by the government."
Moynihan is considered by analysts to be a leading candidate to replace Lewis.
Rep. Elijah Cummings, D-Md., told him: "I don't know who you think we are." It wasn't credible that Moynihan, who hadn't practiced law in years would replace the experienced Mayopoulos unless company management wanted to disregard his advice, Cummings said.
Lewis' earlier testimony, and statements by New York Attorney General Andrew Cuomo, show that "pressure was being applied," Issa said.
But Gifford, the Bank of America director, said what swayed him to vote for the merger was the legal uncertainty of fighting to invoke special circumstances to annul the deal. That would have been "a lose-lose for Bank of America shareholders," he said.
An e-mail sent by Gifford to family members on Jan. 21, released by the committee, shows him telling them: "This was a bad decision and when we realized same, the U.S. government pressured us to stick with it. That's when they agreed to give us more capital and guarantee some of their bad assets."
The flap over the bonuses ultimately cost former Merrill CEO John Thain his job at Bank of America, and the continuing fallout led Lewis to decide to step down at the end of this year.
Another key issue is what legal advice Bank of America received regarding disclosing the amount of the bonuses -- which could have totaled up to $5.8 billion -- to shareholders before their vote on the companies' merger. The Securities and Exchange Commission sued Bank of America in August, alleging that it failed to tell shareholders that it had authorized Merrill to pay that amount in 2008 even though the investment bank had suffered the stunning loss.
The terms of the bank's takeover of Merrill, including the bonus payments, were laid out in documents prepared by outside attorneys for the two companies. The attorneys were mainly responsible for drafting Bank of America's disclosure filings to the SEC.
The House panel's scrutiny follows months of legal wrangling over the deal. In September, Cuomo's office subpoenaed five members of Charlotte, N.C.-based Bank of America's board as part of an investigation into the Merrill takeover. Seven directors have resigned from the board since shareholders replaced Lewis as chairman in April.
Bank of America had settled the SEC's separate case over disclosures of the Merrill bonuses in September, but a federal judge said the $33 million settlement accord was unfair and needlessly penalized the bank's shareholders. The judge has ordered the case to go to trial on Feb. 1.