Henry Paulson

What To Make Of Hank Paulson's "Texan" Threats On Ken Lewis's Job?

Moe Tkacik | April 24, 2009, 4:11PM

It's clear New York Attorney General Andrew Cuomo's probe into the taxpayer-supported Bank of America-Merrill Lynch merger has widened considerably since he began digging into Merrill's accelerated payout of $3.6 billion in bonuses before the disclosure of a devastating fourth quarter loss. But where is it all headed?

Yesterday Cuomo wrote a letter to Congress, the SEC and TARP Oversight chair Elizabeth Warren disclosing a few findings "that raise questions about the transparency of the TARP program, as well as about corporate governance and disclosure practices at Bank of America." But as former Treasury Secretary Hank Paulson once said about such disclosures, the carefully-worded, heavily redacted documents "create more questions than they answer." The most headline-grabbing detail was Paulson's threat to fire Bank of America CEO Ken Lewis if he backed out of the bank's agreement to buy Merrill Lynch at the agreed upon $10 a share; the second was the revelation that the Fed and Treasury had left the SEC "in the dark" throughout the entire process.

The immediate question at hand is whether Lewis broke securities laws or violated his fiduciary duty to protect his shareholders when he went along with Paulson. Certainly many Bank of America shareholders believe so; the news was met with a statement from CtW, the shareholder group campaigning to oust Lewis in a proxy battle declaring that Lewis "violated their legal duties to shareholders in order to protect their own employment interests" when he decided not to invoke the deal's Material Adverse Change clause, which allows companies to get out of merger agreements under some circumstances. Bank of America shares have lost about two-thirds their value since the Lewis announced it was buying the investment bank.

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