New York state officials Thursday sued Bank of America

New York state officials Thursday sued Bank of America and its former top executives
taxpayer bailout funds to acquire brokerage Merrill Lynch.

Andrew Cuomo, the New York state attorney general, announced the lawsuit against the bank, former chief executive Kenneth Lewis and former chief financial officer Joseph Price "for duping shareholders and the federal government in order to complete a merger with Merrill Lynch."

"This merger is a classic example of how the actions of our nation's largest financial institutions led to the near-collapse of our financial system," Cuomo said in a statement.

"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large. This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules," he said.

"In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America's misdeeds."

The news came just after the Securities and Exchange Commission (SEC) announced that it was seeking court approval for Bank of America's proposal to pay 150 million dollars to settle complaints over the Merrill merger.

Bank of America said it was "disappointed" by the New York attorney general's charges, saying they were "totally without merit."

"In fact, the SEC had access to the same evidence as (Cuomo) and concluded that there was no basis to enter either a charge of fraud or to charge individuals," the bank said in a statement.

"The company and these executives will vigorously defend ourselves," it added.

According to the lawsuit, "Bank of America's management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger.

"Once the deal was approved, Bank of America's management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds."

Neil Barofsky, the inspector general of the Treasury's Troubled Asset Relief Program (TARP) that bailed out Bank of America and backed the Merrill takeover, endorsed the lawsuit.

Barofsky, charged with overseeing that the TARP funds were properly used and who participated in the probe, said the lawsuit was "a crucial step toward such accountability."

The TARP continues to support the parallel case brought by the SEC, he said, noting the proposed settlement announced Thursday "will provide for a substantial cash payment and important governance reforms that will bring about change that is so obviously needed at Bank of America."

A lawyer representing Lewis said the New York lawsuit "was a badly misguided decision without support in the facts or the law" and that the ex-CEO was being used as political scapegoat for the financial crisis.

"Mr. Lewis has been unfairly vilified by the political search for accountability for the financial meltdown," attorney Mary Jo White said in a statement.

Price, speaking through an attorney, also denied the charges and noted that Cuomo's conclusions were "contrary" to those of the SEC, "based on the same evidence."

Earlier Thursday, the SEC said that Bank of America had agreed to pay 150 million dollars to settle charges that it had misled its shareholders about the Merrill takeover.

The SEC said it had filed a request for court approval for the proposed settlement, which would see Bank of America pay almost five times more than a previous 33-million-dollar agreement rejected by a court in September.

"Bank of America will pay 150 million dollars and strengthen its corporate governance and disclosure practices to settle SEC charges that the company failed to properly disclose employee bonuses and financial losses at Merrill Lynch before shareholders approved the merger of the companies in December 2008," the SEC said.