M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, September 9, 2009

Cuomo taking a run at BAC?

The WSJ has an article on C1 today suggesting that New York will soon be charging BAC with state securities law violations in connection with its acquisition of Merrill Lynch last year.   The article includes a link to a letter from the head of the Investor Protection Bureau in which Cuomo's office makes it clear that they are nearing "charging decisions" with respect to this case and asks for more information and a waiver of attorney-client privilege.  Apparently, BAC's defense consists solely of 'after speaking with our lawyers we decided not to disclose ML's losses to shareholders in advance of a vote. Oh, and we're not going to tell you what our lawyers told us.  Now go away.'   

Hmm. That's a pretty weak defense.  Did your lawyers tell you that a $21 billion losss was material and needed to be disclosed?  Or, did they advise you that the amounts involved weren't material and not necessarily the kind of information a reasonable investor would want to know? It matters, no?

Now, Ken Lewis has offered up a more interesting defense elsewhere -- the Fed basically ordered him to commit securities fraud.  That's more like it.  This defense has the added benefit of possibly being true - remember where we were about a year ago.  On the one hand, your lawyers say the amounts are material and need to be disclosed.  On the other, the Fed tells you that if you disclose the losses and the deal goes down the tubes, the whole economy will go with it.  No wonder the SEC took such a  meek stance with respect to its BAC litigation- so meek, in fact, that Judge Jed Rakoff refused to approve BAC's settlement

No doubt, Cuomo's more aggressive posture in this case is motivated by the fact that he doesn't have to walk on egg-shells the same way his counterparts in the Federal government have to - and because we are three or four steps away from the edge of the abyss by now.  

Presumably, Cuomo is considering charging BAC under the Martin Act (NY's anti-fraud secruties statute).  While many feel that the Martin Act is essentially a carte blanche for New York state to meddle in what should be the regulatory purview of the SEC and the DOJ, I'm a little more sanguine about it.  Where was Harvey Pitt's SEC after Enron, Worldcom, Tyco, et al?  If it wasn't for the NY AG's office there would have been almost no accountability at the federal level.  And where is the SEC now?  

For a summary of the issues leading up to the BAC-ML shareholder vote, William Cohan (House of Cards) has recently published a very good essay on the last days of Merrill in The Atlantic Monthly.   It's definitely worth reading. 


Update:  The Dealbook posts a response from BAC to the NY AG letter in which BAC says it is not asserting an advice of counsel defense. 


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