lewis's response to cuomo's fraud charges, part 1

8/9/2019 Lewis's Response to Cuomo's Fraud Charges, Part 1

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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK------------------------------------------------------------------------x

THE PEOPLE OF THE STATE OF NEWYORK By ANDREW M. CUOMO,Attorney General of the State of NewYork,

Plaintiff,

against

BANK OF AMERICA CORPORATION,KENNETH D. LEWIS and JOSEPH L.PRICE,

Defendants.

::

:::::::::::

::

Index No. 450115/2010

------------------------------------------------------------------------x

ANSWER OF KENNETH D. LEWIS

Pursuant to Section 3018 of the New York Civil Practice Law and Rules (CPLR),

Kenneth D. Lewis, through undersigned counsel, hereby answers the Complaint (Complaint)

of the Attorney General of the State of New York (Attorney General) as follows:

Context of Complaint and Answer

On January 1, 2009, Bank of America Corp. (Bank of America or the Bank) acquired

Merrill Lynch & Co., Inc. (Merrill), one of the largest financial institutions in the United States

and New York State, in a transaction (the Merger) that has already proven to be of major

financial benefit to the Banks shareholders. The Merger took place under the leadership of Mr.

Lewis, then Bank of Americas Chief Executive Officer (CEO), during some of the most

tumultuous months in global financial history, as industry giants such as AIG, Lehman Brothers,

Fannie Mae, Freddie Mac and Washington Mutual failed or were rescued by the federal

government, and as Merrill itself was under severe financial distress. In significant part because

ILED: NEW YORK COUNTY CLERK 08/18/2010 INDEX NO. 450115/

YSCEF DOC. NO. 7 RECEIVED NYSCEF: 08/18/


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of the Merger, Bank of America has emerged from this period as one of the strongest U.S.

financial institutions. And for the year ended December 31, 2009, the Merger was significantly

accretive to Bank of America, with Merrill contributing $4.7 billion to Bank of Americas net

income, or almost 75% of the Banks total net income.1

Wholly apart from these immediate

financial benefits, the Merger also has enhanced several of Bank of Americas core businesses,

transforming it into a global presence in investment banking and into one of the largest and most

profitable wealth management advisors in the United States. In short, the Merrill Merger has

been an unmitigated financial and strategic success.2

Some have looked to assign blame for every aspect of the financial crisis, even where

there is no evidence of misconduct. This case is a product of that dynamic and does not

withstand either legal or factual scrutiny. Even the Securities and Exchange Commission

(SEC), which investigated the facts of the Merger thoroughly, concluded that no case was

appropriate against individuals. By contrast, the Attorney General has filed this Complaint

against the Bank, Mr. Lewis, and former Bank of America Chief Financial Officer (CFO) Joe

Price (together, the Defendants), alleging without basis a conspiracy to mislead the public and

shareholders.

The Attorney Generals theory is both implausible and internally inconsistent. The

Attorney General essentially alleges: (i) that the Banks leadership agreed to purchase Merrill in

September 2008, and eight weeks later lied to its lawyers by understating Merrills fourth-

1

These figures exclude the impact of intercompany transfers of businesses and are before theconsideration of certain merger-related costs, revenue opportunities and certainconsolidating tax benefits that were recognized in legacy Bank of America legal entities.Bank of America Corp. 2009 Form 10-K, dated February 26, 2010, at 128, available onlineat http://www.sec.gov/Archives/edgar/data/70858/000119312510041666/d10k.htm

2See Moynihands Full, The Economist (Apr. 17, 2010); Andrew Martin, Bank of America,With Merrills Help, Returns to Profit, N.Y. Times (Apr. 16, 2010).


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quarter losses to obtain an opinion that no disclosure of Merrills fourth-quarter losses was

required; (ii) that the Banks leadership thereby was able to conceal the fourth-quarter losses at

Merrill from shareholders, so that the shareholders would vote to approve the Merger, even

though the Banks leadership knew the fourth-quarter losses and their alleged impact on the

Bank would become public only a month later when its annual results were announced; and then

(iii) that the Banks leadership did a dramatic about-face to mislead the federal government by

overstating Merrills financial distress to obtain government funding and allow the Bank to

proceed with the acquisition. The Attorney General declares that what motivated Mr. Lewis, Mr.

Price and the Bank was greed and hubris, but this part of the Attorney Generals story like

the rest of it flies in the face of the actual facts and rational logic. There is no allegation that

Mr. Lewis or any member of management personally gained from the transaction any differently

than did any Bank of America shareholders.3

Indeed, if, as the Attorney General suggests, Bank

of America executives thought before the shareholder vote that the Merger would harm the Bank

(and thus themselves), greed and hubris much more likely would have led them to walk away

from the Merger despite the devastating effect that would have had on the nations financial

system rather than hatch a plan that gambled on successfully misleading the Banks own

lawyers, its shareholders and the government to enable the completion of the Merger.

The facts, when stripped of rhetoric, tell a completely different story from that in the

Attorney Generals Complaint. The Bank and its leadership had a vision of the potential

3Members of Bank of Americas leadership were significant Bank of America shareholders,and therefore had every incentive to act in the shareholders best interests. As of February9, 2009, shortly after the Merger closed, Mr. Lewis owned more than 4.6 million shares ofBank stock and Mr. Price owned more than 940,000 shares. The rest of the Banks seniormanagement and directors held another 43 million of the Banks shares. See Bank ofAmericas Definitive Notice and Proxy Statement on Schedule 14A, dated March 18, 2009,at 18, available online athttp://www.sec.gov/Archives/edgar/data/70858/000119312509057465/ddef14a.htm.


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strategic benefits of the Merger, sought the advice of world-class financial and legal advisors on

disclosure and financial issues, followed that advice, and acted in good faith in an attempt to

make the best decisions for shareholders. The Attorney General, having conducted an extensive

investigation into this matter, should be aware of these facts, yet his Complaint distorts that

reality in an ill-founded attempt to lay blame where it does not belong. To highlight but a few of

the many examples of complete distortions:

The Complaint incorrectly suggests that the Banks inside and outside counsel (one of thenations leading law firms) reached a conclusion in mid-November 2008 that disclosureof Merrills projected fourth-quarter losses was required, only to reverse that decision aweek later; as the Attorney General is aware from testimony his office elicited, however,no such decision was reached on November 13, 2008 rather, counsel was in the processof reviewing the issue and concluded unanimously on November 20, 2008 that nodisclosure of Merrills fourth-quarter financial performance was warranted.

The Complaint incorrectly suggests that Bank of Americas General Counsel, TimothyMayopoulos, was terminated on December 10, 2008 because he knew too much; in fact,the evidence is crystal clear that after board members expressed concern about thepotential departure of Brian Moynihan, Mr. Mayopoulos was terminated solely to create asenior position for Mr. Moynihan to fill and not because of any legal advice. Mr.Moynihan is now the CEO of the Bank.

The Complaint incorrectly suggests that Mr. Lewis, Mr. Price and others at Bank ofAmerica were aware of over $10 billion in after-tax losses at Merrill prior to theDecember 5, 2008 shareholder vote on the Merger, and that Bank of America executivesconcealed these losses from shareholders and then misled federal regulators about theirknowledge of Merrills losses later in December; in fact, the evidence is clear that Mr.Lewis and Mr. Price were not aware of after-tax losses at Merrill of more than $10 billionprior to the shareholder vote, and that, instead, they became aware of additional projectedlosses at Merrill subsequent to the shareholder vote, thereby triggering their concern thatthe loss projections had accelerated in a manner that created heightened risk for the Bank.

The Complaint suggests that Mr. Lewis did not believe in good faith that Bank of

America had a potential material adverse event clause (MAC) claim arising fromMerrills losses, when in fact Mr. Lewis was advised by counsel that there was a viableMAC claim, other executives also held this belief, and the Board seriously consideredinvoking the MAC clause if that became necessary.

The bottom line is that the actual facts reflect Mr. Lewiss good faith and unyielding

dedication to the best interests of the shareholders throughout the Merger transaction process and


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simply do not support the inconsistent, selectively presented, and often nonsensical version of

events set forth in the Attorney Generals Complaint.4

With that context, Mr. Lewis now responds to the specific paragraphs of the Attorney

Generals Complaint upon actual knowledge as to allegations regarding himself and upon

information and belief as to all other allegations. To the extent that any aspect of the Complaint,

including its headings and sub-headings, requires an answer that is not provided below, Mr.

Lewis denies that aspect of the Complaint.

Response to Specific Allegations

1. In September 2008, Bank of America agreed to merge with Merrill Lynch. Thismerger has, in many ways, become a classic example of how the modus operandi of ournation's largest financial institutions led to the near collapse of our financial system. Inorder to complete its deal, Bank of America's management misled its shareholders by notdisclosing massive losses that were mounting at Merrill Lynch so that the shareholderswould vote to approve the deal. Once the deal was approved, Bank of America'smanagement manipulated the federal government into saving the deal with billions intaxpayer funds by falsely claiming that they intended to back out of the deal through aclause in the Merger Agreement. Ultimately, this was an enormous fraud on taxpayers whoended up paying billions for Bank of America's misdeeds. Throughout this episode, theconduct of Bank of America, through its top management, was motivated by self-interest,greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them.Bank of America's management thought of itself as too big to play by the rules and, just asdisturbingly, too big to tell the truth.

1. Paragraph 1 is largely baseless rhetoric. Mr. Lewis denies the allegations contained in

Paragraph 1, other than he admits that in September 2008 representatives of Bank of

America and Merrill agreed to a merger of their respective corporations, and that it was

in the best interest of the Banks shareholders to approve the Merger.

2. Bank of America agreed to buy Merrill over the weekend of September 13-14, 2008,and the parties to the merger announced it on Monday, September 15. On November 2,2008, the Bank sent out a proxy to shareholders recommending that they approve the

4 Because of the Complaints failure to identify the specific actions by Mr. Lewis that theAttorney General claims to have violated the law, Mr. Lewis expressly reserves theright to seek to amend and/or supplement his Answer as may be appropriate.


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transaction in a vote that was scheduled for December 5, 2008. By early November, lossesat Merrill were mounting, and surpassed $7.5 billion in pretax losses for October alone.

2. Mr. Lewis denies the allegations contained in Paragraph 2, other than he admits that

during the weekend of September 13-14, 2008, representatives of Bank of America

agreed to purchase Merrill, that the parties to the Merger announced their agreement on

Monday, September 15, and that on or about November 3, 2008, Bank of America sent

materials to shareholders recommending their approval of the transaction and soliciting

their proxies for a vote scheduled for, and subsequently conducted on, December 5,

2008.

3. By early December 2008, Bank of America's top management, including its CEOKen Lewis and CFO Joseph Price, had two choices: they could tell the Bank's shareholdersabout the huge material losses at Merrill since the merger proxy was filed, or they couldhide them. Bank management chose to hide the information. In particular, Bankmanagement failed to disclose that by December 5, 2008, the day Bank of Americashareholders voted to approve the merger with Merrill Lynch, Merrill had incurred actualpretax losses of more than $16 billion. Bank management also knew at this time thatadditional losses were forthcoming and that Merrill had become a shadow of the companyBank of America had described in its Proxy Statement and other public statementsadvocating the merger. The Bank's management thus left the Bank's shareholders in thedark about fundamental changes at Merrill that were obviously important to their votingdecision. These disclosure failures violated New York's Martin Act.

3. Mr. Lewis denies the allegations contained in Paragraph 3.

4. Shareholders voted to approve the merger on December 5, and it became effectiveon January 1, 2009. Merrill's fourth quarter actual losses remained undisclosed to theshareholders until mid-January 2009, well after the deal closed.


Merrills shareholders voted to approve the Merger on December 5, 2008, that Bank of

Americas shareholders voted to issue additional shares needed to effectuate the Merger

on December 5, 2008, that the Merger became effective on January 1, 2009, and that

fourth-quarter results were disclosed on January 16, 2009.


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5. Having obtained shareholder approval for the deal, Lewis then misled federalregulators by telling them that because 50% of Merrill's tangible equity had disappeared,the Bank could not complete the merger without an extraordinary taxpayer bailout. Lewiswent on to say how the Bank needed to "fill the hole" left by the unprecedented losses,which contradicted his public statements to the effect that the Bank would not need

additional capital. Remarkably, between the time that the shareholders had approved thedeal and the time that Lewis sought a taxpayer bailout, Merrill's actual losses had onlyincreased another $1.4 billion. The Bank's management has not and cannot explain whythey did not disclose to the Bank's shareholders losses so great that, absent a historictaxpayer bailout, they threatened the Bank's very existence.


6. From the moment the merger was announced, Merrill was transparent with BoAmanagement about the losses Merrill was incurring. The Bank's management embeddedemployees at Merrill's offices, and received real-time updates as Merrill's lossescompounded. The Bank's top management received regular updates on Merrill'sdeteriorating condition. Price in particular was intimately familiar with the losses, and hada practice of reviewing and commenting on real time reports of actual losses from Merrill'sinternal systems.

6. Mr. Lewis denies the allegations contained in Paragraph 6 to the extent that the

phrases BoA management, Banks management and Banks top management

are taken to include him. Mr. Lewis otherwise lacks knowledge or information

sufficient to form a belief as to the truth of the allegations contained in Paragraph 6,

and therefore denies the allegations, other than he admits that some Bank employees

began working at Merrills offices after the Merger was announced and that certain

Bank employees received certain preliminary, estimated and forecasted financial

information relating to Merrills financial performance in the fourth quarter of 2008.

7. On November 13, when Price knew of at least approximately $5 billion in after taxlosses, Bank of America's General Counsel, Timothy Mayopoulos, and lawyers from its

outside law firm, Wachtell, Lipton, Rosen & Katz, determined the Bank should disclose thelosses. The lawyers discussed the date of the disclosure, the manner of the disclosure, whowould draft the disclosure, and that Price would approach Merrill CEO John Thain aboutthe disclosure. Shortly thereafter, however, the decision was reversed, Wachtell's role wasmarginalized, and the Bank made its own decision not to disclose. Outside counsel wasnever again consulted about disclosure, even after the losses later doubled.



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8. By December 3, Price knew that known losses to date exceeded $8.5 billion after taxand that billions more in losses were coming, because that day he met with executives,including Lewis, to discuss those losses. Lewis was also aware of the disclosure issues,because Price updated him on disclosure and loss issues. Price knew, based on hisconversations with Mayopoulos, that crucial to Mayopoulos' disclosure advice was whether

Merrill's losses for the entire quarter could exceed what occurred in its prior five quarters,a range between $2.1 billion and $9.833 billion after tax. Price only told Mayopoulos aboutan increase in losses to $7 billion, as opposed to what he actually knew or should haveknown: that known losses plus further expected losses would exceed $10 billion in totalafter tax losses.

8. Mr. Lewis denies the allegations contained in Paragraph 8, other than he admits that on

December 3, 2008, he participated in a conference call with Mr. Price, John Thain and

Neil Cotty during which Merrills financial performance was discussed and avers that

prior to the December 5, 2008 shareholder vote, he was informed by Mr. Price that

counsel had analyzed the potential disclosure of Merrills projected losses for the fourth

quarter of 2008 and had concluded that no disclosure was warranted.

9. Price also led Mayopoulos to believe that the $7 billion loss represented an estimatefor the entire quarter, not known losses to date. Price knew that the information he failedto tell Mayopoulos was crucial to the advice Mayopoulos would provide. Based on the falseand incomplete information provided by Price, Mayopoulos concluded that no disclosurewas necessary.

9. Mr. Lewis denies the allegations contained in Paragraph 9, other than he avers that prior

to the December 5, 2008 shareholder vote, he was informed by Mr. Price that counsel

had analyzed the potential disclosure of Merrills projected losses for the fourth quarter

of 2008 and had concluded that no disclosure was warranted.

10. On December 4, Price learned that Merrill's actual pretax losses had grown to$11.769 billion, and knew or should have known of an additional $2.3 billion in goodwill

write-downs that brought the total to over $14 billion. By December 5, Price knew or wasreckless or negligent in not knowing that Merrill's losses had swelled to $16.2 billion pretaxwith goodwill (approximately $10.4 billion after tax), surpassing all thresholds set byMayopoulos. Price did not tell Mayopoulos any of this information prior to the shareholdervote.



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11. Mayopoulos only learned of increased losses at Merrill the following Tuesday,December 9, while attending the Bank's Board of Directors meeting. At the meeting,Mayopoulos heard Price tell the Board of a fourth quarter estimate of $9 billion post-tax(in fact, contrary to what was told to the Board, Merrill had already suffered $9 billion inknown losses and expected billions more in losses). At the time, Mayopoulos had previously

been told about only $7 billion in losses. (Mayopoulos also knew that on December 1, Priceand the Bank's Head of Corporate Development, Gregory Curl, had sought his advice onthe material adverse change ("MAC") clause.)

11. Mr. Lewis lacks knowledge or information sufficient to form a belief as to the truth of

the allegations contained in Paragraph 11, and therefore denies the allegations, other

than he admits that a meeting of the Bank of America Board of Directors was held on

December 9, 2008 at which Mr. Price provided summary financial information.

12. Mayopoulos sought out Price to discuss the increased losses, but was told that hewas in a closed-door meeting and could not be interrupted. The next morning, before hehad a chance to address the increased losses, Mayopoulos was summarily terminated andescorted from the building on the spot. The Bank replaced Mayopoulos with BrianMoynihan, a board favorite who had not practiced law in 15 years, had an inactive barmembership, and held the position for only about six weeks. Moynihan is now the Bank'sCEO.



than Mr. Lewis admits that on or about December 10, 2008, Bank of America

terminated the employment of Timothy Mayopoulos and appointed Brian Moynihan as

General Counsel, that Mr. Moynihan left his position as General Counsel to become

President of Global Banking and Global Wealth and Investment Management on or

about January 22, 2009, and that Mr. Moynihan is now the Banks CEO.

13. With its general counsel in the dark about the true extent of the losses at Merrill,Bank management allowed the vote to proceed on December 5 without any disclosureregarding Merrill's financial condition. Notably, Merrill's auditors, Deloitte & Touche, hadadvised Merrill that "given the losses through what it looks like will be November when itcloses, given the fact that you have another couple of billion of dollars coming down theroad in goodwill impairment, we believe it's prudent that you might want to consider filingan 8K to let the shareholders, who are voting on this transaction, know about the size of thelosses to date." Similarly, Bank of America's Corporate Treasurer urged Price to make a


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disclosure to no avail. When Price dismissed the Treasurer's advice, the Treasurer warned,"I didn't want to be talking [about Merrill's losses] through a glass wall over a telephone."

13. Mr. Lewis denies the allegations contained in the first sentence of Paragraph 13 and

otherwise lacks knowledge or information sufficient to form a belief as to the truth of


than he admits that Bank of Americas shareholders voted to issue additional shares

necessary to effectuate the Merger on December 5, 2008 and that Merrills shareholders

voted to approve the Merger on December 5, 2008, and he avers that the

communications between Deloitte & Touche LLP and Merrill and the testimony of Mr.

Brown should be referred to for their complete contents.5

14. Prior to the vote, Merrill's actual fourth quarter lossesnot forecasts or estimatesbut known lossesof which Lewis, Price and the Bank were aware or were reckless ornegligent in not having been aware, increased rapidly. By the end of October (the firstmonth of the quarter) pretax losses totaled $7.5 billion ($4.5 billion after tax). By December3, a month after the proxy had been issued, actual pretax losses to date were $13.3 billion(approximately $8.5 billion after tax), with at least several more billions of dollars in lossesto come. By December 4, actual losses at Merrill totaled $14 billion pretax (approximately$9 billion after tax.) By the morning of December 5, the day of the shareholder vote,Merrill's actual losses to date amounted to $15.3 billion pretax (approximately $9.8 billionafter tax) and Bank management still expected billions more in losses, which would havecaused after tax losses to exceed $10 billion. By the end of the day on December 5, actuallosses had reached $16.2 billion pretax, exceeding $10 billion after tax.


15. Shortly after the vote, Lewis and Price claimed to the government that, in the weekfollowing the shareholder vote, losses at Merrill had increased so fast that they nowbelieved they could not consummate the merger. They claimed they had grounds to invokethe MAC clause on the basis of this increase, and that absent an extraordinary taxpayerbailout, they would exit the merger.

5Mr. Lewis was not afforded the opportunity to identify errata in or verify the transcript of histestimony, and it is his understanding that no other witnesses were afforded such anopportunity to do so. Throughout this answer, by averring to testimony related to this case,Mr. Lewis does not confirm the accuracy of the transcript nor does he mean to waive anyrights to amend his answer in the case of any transcription errors that come to light.


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beginning on or about December 17, 2008, he had discussions with certain officials in

the U.S. Department of the Treasury and the Federal Reserve about Bank of Americas

potential invocation of the MAC clause in the Merger Agreement based on the recent

acceleration of Merrills loss projections for the fourth quarter of 2008, and he avers that

the Court should refer to his testimony for its complete contents.

16. In reality, actual losses had only increased by $1.4 billion since the date of theshareholder vote, a relatively small increase given the amounts concerned. The remainderof the claimed "increase" comprised losses incurred prior to the shareholder vote andalready known to the Bank, together with a guess at remaining losses for the quarter, made

mid-December by Bank and Merrill executives in a complete departure from the usualrigorous month-end valuation procedures.


17. Thus, Bank management sought taxpayer aid on the basis of actual losses only $1.4billion more than losses they had deemed unnecessary to disclose to their shareholders, at atime when the shareholders were deciding whether to buy the company generating thoselosses. The undisclosed losses were enough to ruin the combined entity, as managementdemonstrated by going to the government for a taxpayer bailout, and would have done sowithout that bailout.


18. Having failed in their disclosure obligations, the Bank's management went on tomisrepresent its position to the federal government in negotiations for taxpayer aid. Bankmanagement pretended to the government that it believed it had a viable MAC claim andthat it would seek to exit the merger, or that it would try to renegotiate the purchase price.


19. After the fact, in testimony before this Office and elsewhere, Lewis claimed that thisposition only changed after the government instructed the Bank not to invoke the MAC

clause or renegotiate, but instead to take taxpayer aid in return for completing the merger.Lewis claimed, in effect, that he had been strong-armed by the government.

19. Mr. Lewis denies the allegations contained in Paragraph 19, other than he admits that he

provided testimony to the Attorney General and avers that the Court should refer to his

testimony for its complete contents.


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20. This account is belied by the facts uncovered by this Office. Contrary to Lewis'after-the-fact account, the evidence shows that the Bank never intended either torenegotiate or to terminate the merger using the MAC clause. In fact, the Bank'smanagement knew almost immediately upon conferring with its outside lawyers thatrenegotiation was impossible, because it meant going back to the shareholders, and public

knowledge of the endangered deal would likely destroy Merrill. Likewise, the Bank wasinformed by its outside lawyers that invoking the MAC clause would likely prove a futileexercise that could destroy the Bank.


21. The evidence further demonstrates that almost immediately upon reviewing theDecember 12 loss analysis, the Bank planned to seek taxpayer aid to save the merger, andto use the empty threat of a MAC claim as leverage with the government in negotiations.


22. The Bank's plan worked, and it received the taxpayer aid, in an amount exceeding$20 billion, on top of $10 billion already committed prior to the December negotiations, fora total of approximately $30 billion in aid. As a result, the merger closed as planned onJanuary 1.


the Merger with Merrill closed on January 1, 2009; that, in connection with the Merger,

the United States Government and Bank of America entered into an agreement in

January 2009 whereby the government, as part of the Troubled Asset Relief Program

(TARP), purchased $20 billion in preferred equity in the Bank and agreed to limit the

Banks losses on a $118 billion portfolio of securities in exchange for a fee; that the

Bank made numerous dividend payments to the government in connection with its

preferred equity investment before repurchasing the governments entire TARP

investment on or about December 9, 2009; and that on or about September 21, 2009,

the Bank and the government agreed to terminate the agreement concerning the $118

billion portfolio in exchange for a $425 million payment from the Bank to the

government.


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23. By this date, the cash portion of Merrill bonuses for 2008$2.5 billionhad beenpaid out. These cash bonuses, which with the non-cash portion would eventually total $3.57billion, were paid for the worst year in Merrill's history. It was the year, in fact, that wouldhave seen the firm's destruction absent a taxpayer bailout.


the allegations contained in Paragraph 23, and therefore denies those allegations, other

than he admits that Merrill paid certain incentive compensation before the end of the

year.

24. On top of everything, the Bank failed to tell its shareholders that, in addition tobuying a company that would have destroyed the Bank without taxpayer aid, it was goingto permit that company to pay the $3.57 billion in bonuses in a manner and at a timecompletely inconsistent with its prior practice. The amount, criteria and timing of thebonus payments were omitted from the proxy.


25. In short, in the process of acquiring Merrill, the Bank's management misled itsshareholders, the public, its board and its lawyers by concealing Merrill's disastrous fourthquarter financial results in order to secure the shareholders' uninformed approval of thedeal. The Bank's management then salvaged this potentially crippling situation byextracting billions in taxpayer bailouts by misleading the federal government. They did this,in part, by threatening federal officials that they would terminate the Merger Agreementbased on a material adverse changevirtually the same material change they failed to

disclosed to their shareholders prior to the vote. This action seeks redress under NewYork's Martin Act for this conduct.


the Attorney General purports to bring this action against Mr. Lewis pursuant to New

York General Business Law article 23-A, sections 352 et seq., commonly known as the

Martin Act.

26. The Attorney General has an interest in the economic health and well-being ofinvestors who reside or transact business within the State of New York. The State of NewYork, moreover, has an interest in upholding the rule of law generally. Defendants'conduct has injured these interests.

26. Mr. Lewis denies the allegations contained in Paragraph 26, other than he admits that, in

general, the Attorney General and the State of New York have the interests identified in


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the first two sentences of Paragraph 26, but otherwise denies that these interests are

being served in this litigation.

27. The State of New York brings this action pursuant to Executive Law 63(1) and

63(12), General Business Law 352 et seq. (the "Martin Act") and the common law of theState of New York.


the Attorney General purports to bring this action pursuant to Executive Law sections

63(1) and 63(12) and New York General Business Law article 23-A, sections 352 et

seq., commonly known as the Martin Act.

28. Pursuant to Executive Law 63(12), the Attorney General is authorized to bring anaction for restitution, damages, and other relief in connection with repeated fraudulent orillegal acts in the carrying on of any business.

28. Mr. Lewis avers that Paragraph 28 states a legal conclusion to which no response is

required. To the extent that a response is required, Mr. Lewis denies the allegations

contained in Paragraph 28.

29. Pursuant to the Martin Act, the Attorney General is authorized to bring an actionfor restitution of money obtained as the result of any fraudulent practices in connection

with the sale of securities.

29. Mr. Lewis avers that Paragraph 29 states a legal conclusion to which no response is

required. To the extent that a response is required, Mr. Lewis denies the allegations


30. The State seeks restitution, damages, costs, and equitable relief with respect toDefendants' fraudulent and otherwise unlawful conduct.

30. Mr. Lewis denies the allegations contained in Paragraph 30, including that the Attorney

General is entitled to the relief requested or to any other relief, other than he admits that

the Attorney General purports to seek restitution, damages, costs and equitable relief.


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31. Many of Defendants' actions originated from New York, New York, whereDefendants reside and/or conduct business. Moreover, numerous New York investors, aswell as the interests of the State of New York, were harmed by Defendants' conduct.

31. Mr. Lewis denies that he resides in New York and denies that either New York

investors or the State of New York were harmed by his conduct. Mr. Lewis otherwise

lacks knowledge or information sufficient to form a belief as to the truth of the

allegations contained in Paragraph 31, and therefore denies the allegations, other than he

admits that some of the actions described in the Attorney Generals complaint took

place in New York, New York.

32. Defendant Bank of America is a Delaware corporation with its principal place ofbusiness at 100 Tryon Street, Charlotte, North Carolina. It conducts significant business atits New York headquarters located at One Bryant Park, New York, New York.

32. Mr. Lewis admits the allegations contained in Paragraph 32.

33. Defendant Kenneth D. Lewis was the Chairman and Chief Executive Officer ofBank of America Corporation during the period relevant to this action.

33. Mr. Lewis admits that he was the CEO of Bank of America from on or about April 25,

2001 until on or about January 1, 2010, and was the Chairman from in or about

February 2005 until on or about April 29, 2009, but otherwise denies the allegations


34. Defendant Joseph L. Price was the Chief Financial Officer of Bank of AmericaCorporation during the period relevant to this action. Price reported directly to Lewis.

34. Mr. Lewis admits that Mr. Price was the CFO of Bank of America during the period

September 2008 through January 2009 and that Mr. Price reported to Mr. Lewis during

that time, but otherwise denies the allegations contained in Paragraph 34.

35. J. Steele Alphin was Bank of America's Chief Administrative Officer during theperiod relevant to this action.


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35. Mr. Lewis admits that J. Steele Alphin was the Banks Chief Administrative Officer

during the period September 2008 through January 2009, but otherwise denies the

allegations contained in Paragraph 35.

36. Richard Alsop was in-house counsel at Merrill Lynch & Co. ("Merrill") during theperiod relevant to this action.


the allegations contained in Paragraph 36, and therefore denies the allegations.

37. David Belk was Vice President of Bank of America's Corporate Development groupduring the period relevant to this action. Before that, he worked in Bank of America'sFinance group, on forecasting and closing the books.

37. Mr. Lewis admits that David Belk was Vice President of Bank of Americas Corporate

Development group during the period September 2008 through January 2009, but

otherwise denies the allegations contained in Paragraph 37.

38. Teresa Brenner was associate general counsel at Bank of America during the periodrelevant to this action.

38. Mr. Lewis admits that Teresa Brenner was Associate General Counsel at Bank of

America during the period September 2008 through January 2009, but otherwise denies

the allegations contained in Paragraph 38.

39. Jeffrey Brown was Bank of America's Treasurer during the period relevant to thisaction. He reported directly to Price.

39. Mr. Lewis admits that Mr. Brown was the Banks Treasurer during the period

September 2008 through January 2009, but otherwise denies the allegations contained

in Paragraph 39.

40. Gary Carlin was the Vice President and Corporate Controller at Merrill Lynch andreported to Nelson Chai during the period relevant to this action. Carlin's primaryresponsibilities as corporate controller included overseeing the process for closing Merrill'sbooks at month-end, overseeing Merrill's corporate and external reporting requirements,and maintaining the general ledger of the books and records. Carlin was also one of theprimary individuals overseeing Merrill's goodwill impairment testing and required


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disclosures associated with such analysis, and in this connection worked with Deloitte &Touche, Merrill's auditors.



41. George Carp was the Business Finance Officer of Bank of America's GlobalMarkets group during the period relevant to this action.



42. Nelson Chai was the Executive Vice President and Chief Financial Officer of MerrillLynch and reported directly to John Thain in the period prior to the close of the merger.



than he admits that Nelson Chai reported to Mr. Thain.

43. Neil Cotty was Bank of America's Chief Accounting Officer during the periodrelevant to this action.

43. Mr. Lewis admits that Neil Cotty was Bank of Americas Chief Accounting Officer



44. Gregory Curl was Vice Chairman of Corporate Development at Bank of Americaduring the period relevant to this action. As head of Corporate Development, Curl wasprimarily responsible for heading the overall business strategy for Bank of America.Directly reporting to Lewis, Curl was the main architect and strategist for Bank ofAmerica during the merger negotiations with Merrill during the weekend of September 13-14.


Gregory Curl was Vice Chairman of Corporate Development and Global Corporate

Strategy and Planning for Bank of America during the period September 2008 through


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January 2009, and that Mr. Curl played a leading role in Merger negotiations with

Merrill during the weekend of September 13-14, 2008.

45. Nicholas Demmo was a corporate partner at Wachtell, Lipton, Rosen and Katz

during the period relevant to this action.

45. Mr. Lewis admits that Nicholas Demmo was a partner at Wachtell, Lipton, Rosen &

Katz during the period September 2008 through January 2009, but otherwise denies the


46. John Finnegan was Chairman of the Merrill Lynch Compensation Committeeduring the period relevant to this action.

46. Mr. Lewis admits that John Finnegan was the Chairman of Merrills Compensation

Committee prior to the Merger, but otherwise denies the allegations contained in

Paragraph 46.

47. Gregory Fleming was President of Investment Banking and Wealth Management atMerrill Lynch during the period relevant to this action. Prior to the announcement of themerger on September 15, Fleming was the President of Merrill Lynch and in his capacityas President, Fleming ran Merrill's entire investment banking and wealth managementsdivisions and was also responsible for overseeing the investor relations and humanresources divisions. Fleming was the main negotiator for Merrill during merger talks

between the two entities during the weekend of September 13-14. Throughout this period,Fleming reported to Thain.

47. Mr. Lewis admits that Gregory Fleming was President of Investment Banking and

Wealth Management at Merrill prior to the Merger and played a leading role in Merger

negotiations, but otherwise lacks knowledge or information sufficient to form a belief as

to the truth of the allegations contained in Paragraph 47, and therefore denies the

allegations.

48. Charles K. Gifford is an individual who served as a member of the board ofdirectors of Bank of America during the period relevant to this action.


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48. Mr. Lewis admits that Charles K. Gifford was a member of the Bank of America Board

of Directors during the period September 2008 through January 2009, but otherwise

denies the allegations contained in Paragraph 48.

49. Thomas Graham was Deloitte's lead partner for Accounting and FinancialReporting on the Merrill Lynch account during the period relevant to this action.



50. Christopher Hayward was Finance Director of Merrill Lynch during the periodrelevant to this action. Hayward reported directly to Chai and was actively involved inreviewing the reports with respect to Merrill Lynch in the fourth quarter of 2008.



51. Ed Herlihy was a senior corporate partner at the law firm of Wachtell, Lipton,Rosen & Katz during the period relevant to this action. He led the team that advised theBank on all issues related to the merger, including the questions of disclosure of losses, theviability of a MAC claim against Merrill Lynch, and negotiations with the federalgovernment for taxpayer aid.

51. Mr. Lewis admits that Ed Herlihy was a partner at Wachtell, Lipton, Rosen & Katz

during the period September 2008 through January 2009 and provided legal advice to

the Bank during this period, but otherwise denies the allegations contained in Paragraph

51.

52. Ven Kocaj was a Deloitte supervising partner working on the Merrill Lynch accountduring the period relevant to this action.



53. Thomas J. May is an individual who served as a member of the board of directors ofBank of America during the period relevant to this action.


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53. Mr. Lewis admits that Thomas J. May was a member of the Bank of America Board of

Directors during the period September 2008 through January 2009, but otherwise

denies the allegations contained in Paragraph 53.

54. Timothy Mayopoulos was Bank of America's Vice President and General Counselduring a portion of the period relevant to this action. Among other things, Mayopoulosadvised Bank of America management on the disclosure of Merrill Lynch's increasinglosses during the fourth quarter 2008, and on the Merger Agreement's MAC clause.

54. Mr. Lewis admits that Timothy Mayopoulos was Executive Vice President and General

Counsel of Bank of America from on or about January 8, 2004 until on or about

December 10, 2008, and avers that prior to the December 5, 2008 shareholder vote, Mr.

Lewis was informed by Mr. Price that counsel had analyzed the potential disclosure of

Merrills projected losses for the fourth quarter of 2008 and had concluded that no

disclosure was warranted, but otherwise denies the allegations contained in Paragraph

54.

55. Nancy Meloth worked in Merrill's Finance Department as head of CorporatePlanning during the period relevant to this action. Directly reporting to Hayward, Melothtracked Merrill's growing losses and prepared reports about them, which reports wereregularly sent to members of Merrill Lynch and Bank of America top management on atimely basis.



56. David Moser was the Chief Accounting Officer and Head of Accounting Policy andCorporate Reporting at Merrill Lynch during the period relevant to this action. UnderCarlin's supervision, Moser was responsible for the day-to-day running of the accountingpolicy and external reporting group. Among his various responsibilities, Moser was

responsible for working with Deloitte & Touche, Merrill's disclosure committee, and in-house counsel to ensure that Merrill's public disclosures and filings were in accordancewith federal and state regulations.




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57. Brian Moynihan was head of Bank of America's Global Corporate Investment Bankthrough the fall of 2008. Then, he was head of Global Private Equity Operations. OnDecember 10, he became Bank of America's general counsel. On January 20, 2009, hebecame head of Bank of America's Global Banking and Global Wealth Management. He iscurrently CEO of Bank of America.

57. Mr. Lewis admits that Brian Moynihan was President of Global Corporate and

Investment Banking from on or about October 24, 2007 until on or about December 10,

2008, that he became the Banks General Counsel on or about December 10, 2008, that

he became President of Global Banking and Global Wealth and Investment

Management on or about January 22, 2009, and that he is currently CEO of Bank of

America, but otherwise denies the allegations contained in Paragraph 57.

58. Eric Roth was a litigation partner at Wachtell, Lipton, Rosen and Katz during theperiod relevant to this action.

58. Mr. Lewis admits that Eric Roth was a partner at Wachtell, Lipton, Rosen & Katz



59. Andrea Smith was Bank of America's HR executive for the Global Corporate

Investment Bank and the CFO division during the period relevant to this action.

59. Mr. Lewis admits that Andrea Smith was a human-resources executive at Bank of

America during the period September 2008 through January 2009, but otherwise denies

the allegations contained in Paragraph 59.

60. John. A. Thain was the Chairman and Chief Executive Officer of Merrill Lynch &Co., Inc. until the closing of the merger with Bank of America on January 1, 2009. MrThain was the head of Bank of America's wealth management and Global Corporate

Investment Bank from January 1, 2009 until January 22, 2009.

60. Mr. Lewis admits the allegations contained in the first sentence of Paragraph 60, and

avers that Mr. Thain was President of Global Banking, Securities and Wealth


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Management from on or about January 1, 2009 until on or about January 22, 2009, but

otherwise denies the allegations contained in Paragraph 60.

61. Having rushed into the acquisition of Merrill Lynch over a single weekend in

September, BoA executives shortly afterward learned of staggering losses at their newpurchase. They learned of these losses before the vote at which their shareholders were todecide whether to approve the merger on December 5. By that date, Merrill Lynch's actualpretax losses had reached $16.2 billion, composed of October, November and Decemberactual losses plus a goodwill write-down (an additional loss) in the amount of $2.3 billion.BoA management failed to disclose this fundamental change in Merrill Lynch's conditionbefore its shareholders voted to approve the merger on December 5 even though thatinformation was unquestionably material to that vote. While Price sought legal advice onthis issue, when doing so he told the Bank's general counsel of $7 billion in after tax losseswhen he should have told him of $10.4 billion in after tax losses, and led him to believe thatthe inaccurately low $7 billion represented a forecast for the entire quarter. On December

5, the Bank allowed its shareholders to approve the merger without knowing aboutMerrill's catastrophic losses. Lewis and Price either knew, or were reckless or negligent innot knowing, of these staggering losses.6

6 The acquisition happened unbelievably fast. Lewis sent a diligence team to Merrill onSaturday, September 14. The Bank finished its due diligence in just 25 hours, atapproximately 8:00 p.m. on Sunday, September 15. Thus after barely a day of duediligence BoA agreed to buy the vast, immensely complex and dangerously weakenedMerrill Lynch.

Twenty-five hours was simply not enough time for BoA to understand Merrills truefinancial condition. BoA had retained the firm of J.C. Flowers, Inc., to aid with theMerrill due diligence and paid it $19 million to do so, on the rationale that Flowers haddone diligence on Merrill in connection with a prior investment. The prior work,however, was performed during the fourth quarter of 2007, and done for a differentpurpose. The subsequent collapse of Merrills assets demonstrates the insufficiency ofthe diligence.

Even more astonishing, when BoAs directors met Sunday, September 15 to approvethe transaction, they thought they were going to buy a completely different company Lehman Brothers. Director Thomas May expressed surprise when he learned, as he

went into the approval meeting itself, that Merrill was the acquisition target. DirectorChad Gifford later wrote, in a December email that discussed the tough conditionsfacing the Bank, its the way we approved acquisitions that ticks me off the most!!!

Thain and his subordinates managed to extract an enormous, unwarranted premiumfor the stricken firm. The parties agreed to a stock-swap transaction at the price of$29 per share of Merrill stock, which represented a 70 percent premium to the firmsclosing price of $17.05 per share on September 12.


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certain Bank executives received certain preliminary, estimated, and forecasted

financial information relating to Merrills financial performance in the fourth quarter

prior to December 5, 2008. The footnote referenced in Paragraph 61 constitutes pure

argument and is inconsistent with Rule 3014 of the New York CPLR. To the extent

that factual matters are pled in that footnote, Mr. Lewis denies the allegations contained

in the footnote, other than he admits that the Bank conducted due diligence on Merrill

on September 14 and 15, 2008; admits that the Bank retained the services of J.C.

Flowers & Co. LLC (J.C. Flowers) in connection with the proposed Merger; avers

that the Bank and its employees and advisors conducted adequate due diligence prior to

entering into the Merger Agreement; admits that the Banks Board of Directors met on

September 15, 2008 to review the terms of the proposed Merger and approved the

Merger; admits that the Bank and Merrill agreed to a stock-for-stock merger at a fixed

exchange ratio of .8595 and, based upon the market value of the Bank and Merrill

common stock on September 12, 2010, the price represented a 70% premium to the

closing price of Merrills common stock on September 12, 2008; and avers that Mr.

Mays statement and Mr. Giffords email should be referred to for their complete

contents.

62. Top Bank executives, including Price and Curl, realized that Merrill Lynch'sunprecedented losses created a disclosure issue for BoA. Price kept Lewis informed of thedisclosure issues. On November 13, after consulting with Wachtell attorneys, BoA's generalcounsel decided to make a disclosure about the losses. Later, following a meeting with Price,Mayopoulos reversed course, and no disclosure was ever made despite the massive lossesthat engulfed the companies by the end of the year.


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62. Mr. Lewis denies the allegations contained in Paragraph 62, other than he admits that he

was informed that counsel concluded that interim disclosure of Merrills projected

losses was not required.

63. The fourth quarter 2008 reports of Merrill's financial condition on which Lewis,Price and the Bank relied almost entirely reflected real losses to date; they were notforecasts or predictions. By the time the merger was announced in mid-September, Merrillhad a process in place whereby it tracked actual losses on a daily basis. Due to Merrill'slosses at the start of the financial crisis in late 2007, Merrill stopped forecasting and simplytracked its losses.


64. Merrill's Head of Corporate Planning, Nancy Meloth, who oversaw the process,explained that before the financial crisis her group had put "greater focus on all kinds ofthings like three-year plans and forward projections," but that after the crisis struck, "thefocus became much more on day-to-day results and how we were doing." Thus while thereports contained anachronistic labels like "forecast" and "projection," they in facttracked actual losses.



than he avers that Ms. Meloths testimony should be referred to for its complete

contents.

65. The reports documenting Merrill's financial condition during the fourth quarterstated these day-to-day losses in columns titled "actual," which reflected month-endnumbers that only rarely changed (and even then in immaterial ways) after they werebooked.

65. Mr. Lewis denies the allegations contained in Paragraph 65, other than he avers that the

reports referred to in Paragraph 65 should be referred to for their complete contents.

66. The reports also contained a column for estimates known as BTG (Balance To Go),a reference to days remaining in any given period. But as Meloth testified,

[BTG] could possibly be a budget or an expectation that hadbeen there for how the core businesses should perform in anenvironment that we weren't in anymore. And for lack ofsomething better than that, we just left it there, but certainly


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no one would have relied on this for any sort of decision-making purpose, in my opinion.



than he avers that Ms. Meloths testimony and the reports referred to in Paragraph 66

should be referred to for their complete contents.

67. In addition to day-to-day losses, the reports reflected changes in the valuations ofsecurities and trading positions held by Merrill, known as "marks." Typically, marks werenot included in the day-to-day losses reflected in the "actual" column until the end of eachmonth. During the fourth quarter of 2008, Corporate Planning finalized marks at the endof each month, adding them to the monthly results to reach the total actual monthly figure.Setting the marks involved financial analysis and conversations between CorporatePlanning and business heads, sometimes even rising to senior executive levels. For the past16 months, Merrill had averaged a loss of least $3.2 billion in marks each month.



than he avers that the reports referred to in Paragraph 67 should be referred to for their

complete contents.

68. Moreover, throughout most of the fourth quarter, the reports lacked an importantcomponent of the losses to date. From November 20 forward, BoA executives knew, orwere reckless or negligent in not knowing, of the existence of an additional $2.3 billiongoodwill charge that would have to be added to Merrill's losses. In the third quarter of2008, Merrill carried a goodwill asset on its books (derived from the excess of purchaseprice of a company over its fair market value) associated with a unit in its FICC (fixedincome) division. On November 20, if not earlier, Moser and Carlin learned that this assetwould have to be marked down in the amount of $2.3 billion. As a standalone entity untilthe end of the year, Merrill would have to account for this mark-down as a loss in its fourthquarter results. Emails and financial reports demonstrate this understanding with explicitwarnings that this material addition to Merrill's losses was not yet included.

68. Mr. Lewis denies the allegations contained in Paragraph 68, other than he avers that the

reports referred to in Paragraph 68 should be referred to for their complete contents.

69. Lewis and Price knew or were reckless or negligent in not knowing of this majoraddition to losses, yet never included it when seeking legal advice on whether Merrill'slosses had to be disclosed, and never disclosed it to shareholders prior to the shareholder


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vote on December 5. But on December 16, long after the vote, Bank executives finallyadded the $2.3 billion in losses in their bid to obtain taxpayer aid from federal officials.


70. Merrill Lynch was transparent in providing its financial information to BoA. Thefunction of Merrill's Corporate Planning Department, headed by Meloth, was to providedata on Merrill's financial condition. As Merrill was focusing on day-to-day results by thefourth quarter of 2008, BoA management was intimately aware of the contemporaneousfinancial condition of Merrill Lynch.

70. Mr. Lewis denies the allegations contained in the third sentence of Paragraph 70. Mr.

Lewis otherwise lacks knowledge or information sufficient to form a belief as to the

truth of the allegations contained in Paragraph 70, and therefore denies the allegations.

71. On November 4, just two days after the Proxy's issuance, members of MerrillLynch's financial reporting unit forwarded the company's preliminary October results toNeil Cotty of BoA indicating a loss of $6.113 billion. The next day, Cotty forwardedMeloth's email to Price, with the comment "[r]ead and weep."



than he avers that Mr. Cottys email and the financial report referenced in Paragraph 71

should be referred to for their complete contents.

72. Five days later, on November 9, Carlin sent Cotty an email entitled "Oct-08 PLReports as of 11/7/08." In the email, Carlin wrote: "Here is where we are after our initialclose. Numbers speak for them selves [sic]." The profit and loss showed the month to datepretax loss at $7.536 billion. Cotty sent the results on to Price two hours later. These losses in just a single month exceeded the total loss number for all but one quarter (the lastquarter of 2007) in the past two years of quarterly results at Merrill Lynch.



than he avers that Mr. Carlins email should be referred to for its complete contents.

73. On November 12, 2008, Meloth circulated an updated report for the fourth quarterto Cotty (the "November 12 Report"). The November 12 Report showed a fourth quarterpretax loss of $8.942 billion. Importantly, the November 12 Report provided actual losses


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of $7.763 billion, made up of October ($7.536 billion) plus November losses to date ($227million, incurred in the first seven days of the month). The loss exceeded $5 billion after tax.



than he avers that the November 12 report should be referred to for its complete

contents.

74. Based on the November 12 Report, Price requested a review of whether anydisclosure of such losses were necessary. Price and Curl began discussing Merrill's fourthquarter losses with BoA's then-general counsel Mayopoulos and associate general counselTeresa Brenner on November 12, meeting to discuss "the subject of the forecasted lossesand whether disclosure of those forecasted losses was necessary or appropriate."



than he avers that the document quoted in Paragraph 74 should be referred to for its

complete contents and that prior to the December 5, 2008 shareholder vote, he was

informed by Mr. Price that counsel had analyzed the potential disclosure of Merrills

projected losses for the fourth quarter of 2008 and had concluded that no disclosure was

warranted.

75. Mayopoulos thought the Merrill losses ought to be disclosed: "[m]y reaction wasthat $5 billion is a lot of money, and I believe my initial reaction was that a disclosure waslikely warranted."

75. Mr. Lewis denies the allegations contained in Paragraph 75, other than he avers that Mr.

Mayopouloss testimony should be referred to for its complete contents and that prior to

the December 5, 2008 shareholder vote, he was informed by Mr. Price that counsel had

analyzed the potential disclosure of Merrills projected losses for the fourth quarter of

2008 and had concluded that no disclosure was warranted.

76. Following this meeting, Mayopoulos went to outside counsel. Mayopoulos "had aconversation with Curl and Herlihy at [the outside counsel firm of] Wachtell Lipton and I


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asked Teresa Brenner to gather some materials for me." At Wachtell, corporate partnerNick Demmo, who worked with Herlihy, relayed the news in a call to litigation partner EricRoth. Mayopoulos relayed to Wachtell the pretax October loss of $7 billion that Price hadtold him, and also told Wachtell that November was flati.e., no losses had yet occurred.As Roth put it, "I recall him [Demmo] mentioning the number $7 billion. I think he also

mentioned that November appeared to be flat." The question for Wachtell was whether todisclose the loss, or as Roth put it, "get the [number] out."



than he avers that Mr. Mayopouloss and Mr. Roths testimonies should be referred to

for their complete contents and that prior to the December 5, 2008 shareholder vote, he

was informed by Mr. Price that counsel had analyzed the potential disclosure of

Merrills projected losses for the fourth quarter of 2008 and had concluded that no

disclosure was warranted.

77. Roth was involved in the disclosure question because he was already handlingdisclosure litigation against the Bank pending in various courts. The next day, November13, Roth sent out an email within his firm seeking research on the duty to disclose. Hereceived a call from litigation partner Warren Stern, and had a discussion with him thatday, as reflected by Roth's contemporaneous notes.



than he avers that the email referred to in Paragraph 77 should be referred to for its

complete contents and that prior to the December 5, 2008 shareholder vote, he was

informed by Mr. Price that counsel had analyzed the potential disclosure of Merrills

projected losses for the fourth quarter of 2008 and had concluded that no disclosure was

warranted.

78. Roth's notes show he discussed with Stern a prior situation in which Bank of America failedto mention the possibility of a major loan write-off in a press release providing guidance forthe quarter. Stern had advised the Bank in the matter, concluding that a duty to update existed, asRoth's notes reflect:


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Warren did memo

concluded there was

a duty

not under 10b-5 casesbetter view =

@ time of vote under federal

proxy + Del. Law

duty to bring to sh. all info

material to vote

The memo, which Roth later reviewed, was ten years old. The lawyers then discussed the lawunder Rule 10b-5 and proxy rules.



than he avers that Mr. Roths notes should be referred to for their complete contents and

that prior to the December 5, 2008 shareholder vote, he was informed by Mr. Price that



79. Roth also performed searches of the LEXIS legal database for disclosure law: "I didan independent Lexis search [...] I found case law that addressed the duty to update andwhether or not there was a duty to disclose intra-quarter numbers, forecasts stuff likethat." The contemporaneous documents show that Roth performed only two searches andretrieved a total of only 12 decisions related to the question of disclosure. Further, Rothwas able to provide this Office with only five cases from his files, and of these, only onedealt with a Proxy Statement sent to shareholders asking them to approve a proposedacquisition. In that case, the court held that the defendant directors had given inadequatedisclosure.



than he avers that Mr. Roths testimony should be referred to for its complete contents

and that prior to the December 5, 2008 shareholder vote, he was informed by Mr. Price


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that counsel had analyzed the potential disclosure of Merrills projected losses for the

fourth quarter of 2008 and had concluded that no disclosure was warranted.

80. On November 13, 2008, Mayopoulos conducted a conference call with outside

counsel Ed Herlihy to discuss "forecasted losses at Merrill Lynch for the fourth quarter of2008 and whether it was appropriate to make any disclosure about them." Roth, Demmo,and Brenner also participated in the meeting.



than he avers that the testimony quoted in Paragraph 80 (which is not attributed to any

particular witness) should be referred to for its complete contents and that prior to the

December 5, 2008 shareholder vote, he was informed by Mr. Price that counsel had



81. Herlihy testified that Mayopoulos told him that October after tax losses were in the$4 billion to $5 billion range, and that November results were flat. Herlihy never receivedany reports from Mayopoulos, only hearing the numbers in discussion.



than he avers that Mr. Herlihys testimony should be referred to for its complete

contents and that prior to the December 5, 2008 shareholder vote, he was informed by

Mr. Price that counsel had analyzed the potential disclosure of Merrills projected losses

for the fourth quarter of 2008 and had concluded that no disclosure was warranted.

82. During this meeting, the parties agreed disclosurewas the proper course, and they discussedboth the disclosure's content and the date of disclosure. Next steps were agreed: to draft thedisclosure and to have Price contact Thain. Contemporaneous notes taken by Roth reflectthe decision to disclose:


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[Tim ] Given ML's # - rec[ommend] both co report week or so before our results not fabulous

Ed write a trend discl.?

Tim how much detail?

Ed Notmuch likeMD&A

Tim if ML break even for Nov. - $7 B loss for

2 Mos. Nick refer to past trend of losses &

say that not abated [...1

Expect it to be no better than might be worse

Tim all agree must be some discl.

Ed yes but balanced

Tim Joe go to Thain/Fleming?

Don't go to Shearman to draft in 1st

instance When put out?12/1?

11/28 even better

It's before 12/1

hearing Week beforesh. Meeting

Consensus 11/28!

Have it written by 11/25 or 11/26

Get Joe to engage ML Mon/Tues. next

week Get draft done



than he avers that Mr. Roths notes should be referred to for their complete contents and

that prior to the December 5, 2008 shareholder vote, he was informed by Mr. Price that


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83. Although, as Roth's notes reflect, Price was to "engage" Merrill Lynch, instead he

avoided the issue by watering it down to a mere question. On November 14, Price met withThain, Cotty, Chai and Hayward at Merrill's New York offices to analyze Merrill's assetsand financial condition. Price did not act on Mayopoulos' advice to tell Thain that Bank ofAmerica would be disclosing Merrill losses. Rather, he merely asked Thain and Chai ifMerrill would be making any disclosures regarding Merrill's fourth quarter losses. Pricerecalled that he "asked that they assess any potential need to early disclose financial resultsand we would do the same, it would come back together."



than he avers that Mr. Prices testimony should be referred to for its complete contents




84. Hayward explained that there was only "a very short comment from Joe Price tothe effect -- not verbatim, but to the effect -- does Merrill plan to do any intra-quarterdisclosure, and John [Thain] responded, No, we don't provide intra-quarter guidance, hadnot been doing that all year and didn't plan to."



than he avers that Mr. Haywards testimony should be referred to for its complete

contents.

85. Following his conversation with Herlihy on November 13, Mayopoulos testified that

he "spent considerable time reviewing materials that I had asked Miss Brenner to gatherfor me and spent time considering the question [of disclosure] that Mr. Price had asked mefor advice on."




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than he avers that Mr. Mayopouloss testimony should be referred to for its complete




86. One of the "significant" factors in his analysis was the range of disclosure:

I wanted to have an understanding of what Merrill Lynch'shistorical financial performance had been since the financialcrisis had started in the third quarter of 2007 so that I couldunderstand whether the projected losses that were now beingdiscussed were consistent or inconsistent with that priorhistorical experience.

The range he had stood between approximately $2 billion and $10billion:

When I looked at this information, I saw that Merrill Lynchhad experienced multi-billion dollar losses for the last fivequarters ranging anywhere from $2 billion to almost $10billion, and from my perspective, if Merrill Lynch ultimatelyended up reporting a loss of $5 billion after taxes, that wouldbe well within the range of prior experience at Merrill Lynch,and that investors, based on that, should not be surprised bythat result.



than he avers that Mr. Mayopouloss testimony should be referred to for its complete




87. Price was aware that this range was important to the analysis. On November 19, he,Curl and Mayopoulos received an email from Curl subordinate David Belk attaching areport showing Merrill's after tax results for the past six quarters. The report showed a lowend of $2.1 billion in losses to common shareholders (in the first quarter of 2008) and ahigh end of $9.833 billion in after tax losses to common shareholders (in the fourth quarterof 2007). Mayopoulos also testified that he discussed this range at a meeting on November


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20, as well as on December 3; and Price himself testified that he knew the range was part ofMayopoulos' analysis.



than he avers that Mr. Prices and Mr. Mayopouloss testimonies and Mr. Belks email

should be referred to for their complete contents and that prior to the December 5, 2008

shareholder vote, he was informed by Mr. Price that counsel had analyzed the potential

disclosure of Merrills projected losses for the fourth quarter of 2008 and had concluded

that no disclosure was warranted.

88. Just a day before, on November 18, 2008, Price, Cotty, Mayopoulos and othersattended a further meeting regarding disclosure of Merrill's fourth quarter losses, todiscuss "the forecasted losses at Merrill Lynch in the fourth quarter of 2008 and issuesrelated to possible disclosure of losses."



than he avers that the testimony quoted in Paragraph 88 (which is not attributed to any

particular witness) should be referred to for its complete contents and that prior to the

December 5, 2008 shareholder vote, he was informed by Mr. Price that counsel had



89. That afternoon, at a second meeting with Price and other financial executives todiscuss Merrill's financial condition, Mayopoulos noted to himself, "what happens if negshh. [sic] vote."



than he avers that Mr. Mayopouloss notes should be referred to for their complete



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90. At a third meeting, Mayopoulos called Herlihy regarding disclosure. Curl was at

this meeting, in person at Wachtell's offices. He had flown up to New York from Charlotteearlier in the day, and claimed in testimony that he only happened to be present for themeeting and was in New York for "other reasons." He stated that "there was a call thatcame into the conference room where I was visiting with a couple of Wachtell lawyers, andthere was really a conversation between them. I can't recall precisely who was on the phonein Charlotte. I think Joe Price I don't know if anybody else was in regard I don'trecall the specifics of it; I was not really a part of the discussion about disclosure."



than he avers that Mr. Curls testimony should be referred to for its complete contents




91. Curl made this claim to bolster his denial of any involvement in disclosure issues,even though Belk sent him an email with peer estimates for discussion in the disclosuremeeting.



than he avers that Mr. Curls testimony and Mr. Belks email should be referred to for

their complete contents.

92. Significantly, Wachtell played a limited role on the question by this time. After theiroriginal conclusion was disregarded, Wachtell lawyers took themselves out of the equation,

doing no substantive work, and in fact simply agreeing with Mayopoulos. They issued nomemoranda or work product and they did no further research. Herlihy testified thatMayopoulos "had done a lot of homework and thought it through and so had come to someconclusion with respect to the disclosure."

92. Mr. Lewis denies the first two sentences of Paragraph 92. Mr. Lewis otherwise lacks

knowledge or information sufficient to form a belief as to the truth of the allegations


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contained in Paragraph 92, and therefore denies the allegations, other than he avers that

Mr. Herlihys testimony should be referred to for its complete contents and that prior to

the December 5, 2008 shareholder vote, he was informed by Mr. Price that counsel had



93. Neither Wachtell nor the Bank ever consulted Roth again on the question. Roth was thelawyer closest to the issues involved in disclosure. He was the lawyer most involved in theanalysis of the question, as the only one who had done any research in the area or talked toother lawyers about the litigation of such questions. He was left to think that disclosurewould be made:

Question: So what was your understanding of what was going tohappen on November 13, 2008 when that conversationended?

Roth: My sense was that as of the close of that meeting the view wasthat some kind of trend disclosure would be made -- or at leastthat was the recommendation that was being made to thebusiness people. I have no reason to believe the businesspeople wouldn't agree with the lawyers' advice -- and thatPrice would go talk to the senior executives of Merrill aboutthe concept.

But after November 13, he was no longer involved, except to hear that the trenddisclosure was never made:

Question: What is the next thing that happened with respect to thedisclosure of the Merrill Lynch loss issue after November 13,2008?

Roth: In terms of what I did [on disclosure], I had no involvementin the consideration or discussion of this issue after November13 and prior to January 15 with the client. [...] I believe that atsome point prior to January 16 I had a conversation with Ed

Herlihy where I inquired after the trend disclosure and whathad happened.[]

Question: What did Mr. Herlihy say?

Roth: He told me [...] that the client had decided that it was notnecessary for the companies to make that disclosure.


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Nor did Roth realize that any further steps or discussions were being takenon the question.



than he avers that Mr. Roths testimony should be referred to for its complete contents




94. Thus ineffect, Mayopoulos answered the question the second time on his own. This time, hisconclusion was not to disclose. On

lewis's response to cuomo's fraud charges, part 1

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