Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, February 11, 2009

Cuomo Says Nearly 700 Merrill Lynch Employees Received at least $1 Million Bonus Payments

In a letter to Barney Frank, Chairman of the House Committee on Financial Services, New York State Attorney General Andrew Cuomo states that, "in a surprising fit of corporate irresponsibility," Merrill Lynch decided secretly to move up the planned date to allocate 2008 bonuses and awarded approximately $3.6 billion in bonuses. He goes on to say:

One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding. We plan to require top officials at both Merrill Lynch and Bank of America to answer this question and to provide justifications for the massive bonuses they paid ahead of their massive losses. As you know, my Office recently issued subpoenas seeking the testimony of former Merrill Lynch CEO John Thain, as well as the testimony of Bank of America Chief Administrative Officer J. Steele Alphin. I expect we will also be seeking the testimony of other top executives at these firms.
What my Office has learned thus far concerning the allocation of the nearly $4 billion in Merrill Lynch bonuses is nothing short of staggering. Some analysts have wrongly claimed that individual bonuses were actually quite modest and thus legitimate because dividing the $3.6 billion over thousands upon thousands of employees results in relatively small amounts estimated at approximately $91,000 per employee. In fact, Merrill chose to do the opposite. While more than 39 thousand Merrill employees received bonuses from the pool, the vast majority of these funds were disproportionately distributed to a small number of individuals. Indeed, Merrill chose to make millionaires out of a select group of 700 employees. Furthermore, as the statistics below make clear, Merrill Lynch awarded an even smaller group of top executives what can only be described as gigantic bonuses.

The top four bonus recipients received a combined $121 million; the next four bonus recipients received a combined $62 million, and the next six bonus recipients received a combined $66 million.  In all, 696 individuals received bonuses of $1 million or more.

Cuomo goes on to state:

My investigation into whether these bonus payments violated New York's fraudulent conveyance statute and whether the lack of disclosures concerning these payments and other matters violated the Martin Act will continue. We will also continue to examine the circumstances surrounding any supposed guaranteed bonuses, their justifications, and Merrill's obligations pursuant to them, once Bank of America produces more information concerning such bonuses.

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