Apr 24 2009

U.S. lawmakers seek BofA-Merrill probe

By Kim Dixon and Rachelle Younglai

Momentum is building among U.S. lawmakers for a probe into the merger of Bank of America (BAC.N: Quote, Profile, Research) and Merrill Lynch, amid allegations that federal officials gave the bank's chief executive an ultimatum to complete the deal with the troubled investment house.

A senior Republican Senator joined House Democrats on Friday, calling for a congressional investigation, after New York's attorney general said that CEO Kenneth Lewis had testified he was pressured by former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to do the merger, or lose his job.

"That was very disturbing," Sen Richard Shelby, ranking Republican on the Senate Banking Committee told the Reuters Global Financial Regulation Summit in Washington on Friday.

Earlier, lawmakers in the House of Representatives demanded documents from the Federal Reserve and the U.S. Treasury Department related to the deal.

New York Attorney General Andrew Cuomo said Lewis testified that Paulson and Bernanke also pressured him to keep quiet about losses at the troubled Merrill Lynch, which rose to $12 billion from $9 billion in a matter of days. This account has been disputed by representatives for Bernanke and Paulson.

"I don't know if there is securities fraud in there or what," said Shelby.

Representative Ed Towns, chairman of the House Oversight and Government Reform Committee, and domestic policy subcommittee chairman Dennis Kucinich, have expanded their probe of the deal.

"The implications of Mr. Lewis' testimony, if accurate, are extremely serious," they said in letters to the Fed and Treasury that were dated April 23 and released on Friday.

Securities experts said the law may have been broken if Lewis wanted to terminate the merger and kept key financial information from investors.

Publicly-traded companies are supposed to widely publicize so-called material information, information an investor needs to decide whether to buy or sell a stock.

"Bank of America and Ken Lewis are, in my mind, in deep trouble," said James Cox, a securities professor at Duke Law School. "Both under state law and federal law disclosure standards there was clear duty to correct earlier statements regarding the viability and wisdom of the acquisition of Merrill Lynch."

The SEC is reviewing the disclosure surrounding the merger.