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Bank Firing of Counsel Is Examined

Four days after Bank of America shareholders voted to approve a merger with Merrill Lynch, Timothy J. Mayopoulos, the bank’s general counsel, was summoned to an executive suite.

Timothy J. Mayopoulos
Source: Fanniemae.com
Timothy J. Mayopoulos

There, Bank of America’s chief risk officer told Mr. Mayopoulos that he was no longer needed at the company, but she gave no explanation of the unexpected dismissal, according to two people briefed on the meeting.

Now, the timing of Mr. Mayopoulos’s dismissal is coming under a spotlight as Attorney General Andrew M. Cuomo of New York and other federal investigators examine why the bank’s executives did not tell shareholders about billions of dollars worth of bonuses as well as huge losses at Merrill Lynch before the deal.

Mr. Mayopoulos was let go the day the bank informed its board that Merrill was bleeding money at an unexpected pace. He was immediately escorted from the building without being permitted to return to his office, the people with knowledge of situation said. His dismissal came six days after Mr. Mayopoulos spoke with the bank’s chief financial officer about mounting losses at Merrill Lynch, which were not disclosed to shareholders before the deal closed.

“I’d like to know why he was dismissed,” said Charles M. Elson, a Bank of America shareholder and a professor of corporate governance at the University of Delaware. “If he was terminated because of disagreements on disclosure on Merrill, that’s relevant. It goes right back to the effectiveness of management. You can always disregard a general counsel’s advice, but the question is, Why did you?”

As general counsel, Mr. Mayopoulos was responsible for advising the bank on its disclosure decisions. It is unclear how he advised executives to handle the information on Merrill’s bonuses and losses, which some shareholders later said would have changed their mind about approving the merger.

In testimony to Mr. Cuomo’s staff in August, Mr. Mayopoulos cited legal ethics rules and declined to provide specifics on the advice he gave the bank. Mr. Cuomo asked the bank in a letter Tuesday to grant Mr. Mayopoulos and the bank’s other lawyers permission to respond. By invoking the confidentiality of legal advice, Bank of America was “hindering this office’s ability to make fair and fully informed decisions as to what charges, if any, to bring and whether individual Bank of America officers should be charged,” Mr. Cuomo’s office wrote.

Bank of America has also cited attorney-client privilege in a separate case involving the Securities and Exchange Commission, with which the bank recently reached a $33 million settlement over disclosure issues. A federal judge who has blocked the settlement has also tried to get the bank to reveal more on the role played by Mr. Mayopoulos and the bank’s other lawyers, and the bank and the S.E.C. will file new documents with that judge on Wednesday. The chairman of a Congressional committee investigating the merger has also asked the bank to reveal documents related to these legal discussions.

In testimony to Mr. Cuomo’s staff, Joe L. Price, the chief financial officer, said he relied on Mr. Mayopoulos’s advice on Dec. 3, the day before the shareholder vote, for the bank’s decision not to disclose Merrill’s mounting losses. Mr. Mayopoulos responded to Mr. Cuomo’s staff that he in turn had spoken with outside counsel about the matter. The bank’s outside law firm was Wachtell, Lipton, Rosen & Katz. Merrill Lynch worked with Shearman & Sterling. Both firms declined to comment.

Kenneth D. Lewis, Bank of America’s chief executive, told Mr. Cuomo’s office this spring that Mr. Mayopoulos’s dismissal came at a time when the bank “had more executives than we needed because of this merger.”

The bank chose one of its own executives, Brian T. Moynihan, over Merrill Lynch’s general counsel to fill the vacancy. Mr. Moynihan held the position for about a month before being shifted to head the bank’s investment banking unit.

The departure of Mr. Mayopoulos, whose family still lives in Charlotte on the same street as Mr. Lewis, surprised executives at Merrill Lynch who had been meeting with him for weeks to figure out how the combined legal department would be arranged. He was involved in such a meeting when he was called in and dismissed, two people briefed on those discussions said.

Bank of America issued a statement that said it had not in fact defended itself by saying it relied on its lawyers. The bank said it believed it had followed disclosure rules.

Mr. Mayopoulos is now the general counsel of Fannie Mae . In a Feb. 2 recommendation letter provided by his lawyer, Ed Hinson, the bank said he had served “with distinction throughout his tenure with the company.”

“The amazing thing about a guy like him is however he’s treated, he’ll do his duty,” Mr. Hinson said. “He’s not going to reveal confidential information.”