Bank of America: Did Ken Lewis Lie to Shareholders? - TIME

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Now, it looks likely that probes into statements about the Merrill deal made by Bank of America officials could lead to charges against Lewis. On Sept. 16 New York attorney general Andrew Cuomo issued subpoenas for five Bank of America directors, reportedly including members of the audit committee. Cuomo is also said to be weighing whether to file civil charges against Lewis.

What could that mean for the CEO? So long as any charges brought are civil and not criminal, there's no risk of jail time. But if Lewis is found to have lied, he won't likely get off with just paying a fine, experts say. He may also lose his job.

"I would advise an insurance company to deny a broad liability insurance if it doesn't fire a CEO for lying," says Nell Minow, a co-founder of corporate-governance-research firm the Corporate Library. "If a CEO is lying, then he has got to go."

The issue of Lewis' honesty resurfaced this week when a judge in U.S. district court rejected a proposed settlement struck between Bank of America and the Securities and Exchange Commission (SEC) over Merrill bonuses. The SEC and Bank of America had earlier agreed that the bank would pay a $33 million penalty to settle an investigation into whether it misled shareholders about year-end payouts on the eve of a vote to approve the merger. As part of the proposed settlement, Bank of America neither admitted nor denied that it had done anything wrong.

But Judge Jed Rakoff, in striking down the settlement, said fining the company — and thus its shareholders — for a misdeed of management was misplaced. "This proposal to have the victims of the violation pay an additional penalty for their own victimization was enough to give the court pause," wrote Rakoff in his decision.

The judge has ordered the case to go to trial as soon as next February. The SEC could instead try to strike a new settlement that satisfies the judge, but based on Rakoff's ruling, law professor John Coffee, who teaches a class with Rakoff at Columbia, says it is unlikely the judge would accept a substitute settlement that doesn't name any individual executives. Lewis, as the chief executive of the bank, is an obvious target. The SEC has yet to say whether it plans to pursue charges against Lewis or any other executive at Bank of America.

Even if Lewis escapes charges in the SEC case, he will still have to dodge New York attorney general Cuomo, who is also reportedly weighing charges against chief financial officer Joe Price over the Merrill bonuses and other issues surrounding the combination of the two banks. Neither Lewis nor Price could be reached for comment, though a Bank of America spokesman recently provided this statement to the Wall Street Journal: "We will continue to cooperate with the Attorney General's office as we maintain that there is no basis for charges against either the company or individual members of the management team."

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