Did government block transparency?
In testimony released by New York State Attorney General Andrew Cuomo, Bank of America's CEO Ken Lewis says he was pressured by the government to keep quiet about losses from absorbing troubled Merrill Lynch. Steve Henn reports.
Bank of America CEO Ken Lewis (Saul Loeb/AFP/Getty Images)
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TEXT OF STORY
Kai Ryssdal: We are going to go back in time a little bit today. To last December and a meeting between Bank of America CEO Ken Lewis, Fed Chairman Ben Bernanke, and then Treasury Secretary Henry Paulson. They were discussing B of A's pending acquisition of Merrill Lynch. Lewis was apparently having second thoughts about the deal. Because according to testimony from Lewis that was released today by New York State Attorney General Andrew Cuomo, Paulson and Bernanke leaned on him pretty hard to get with the program.
So far it's very much a yes-you-did, oh-no-I-didn't story. But Marketplace's Steve Henn reports that what was said is part of a much bigger issue.
STEVE HENN: If Henry Paulson and Ben Bernanke really told the CEO of Bank of America to keep quiet about losses at Merrill Lynch, they were probably breaking the law. That's according to Lynn Turner, former chief accountant at the SEC.
LYNN TURNER: If these allegations are proven true, both Bernanke and Paulson should be prosecuted by the SEC to the fullest extent of the law.
Paulson told investigators that he threatened to have Ken Lewis fired but that he didn't instruct Bank of America to withhold material information. Ken Lewis says he did.
This isn't the only time officials have allegedly pressured companies concerning SEC disclosures. Regulators reportedly leaned on Freddie Mac executives not to reveal that an administration foreclosure prevention program could cost the company $30 billion. John Coffee, a securities expert at Columbia University, says there's an inherent problem when firms are privately run in name only.
JOHN COFFEE: I'm afraid that produces these kinds of very difficult kinds of shadow governance regimes.
And pressures on management to do things to do things government wants. Things like preventing foreclosures or stopping financial meltdowns. Which is why Coffee says...
COFFEE: At the same time we need an independent agency that will protect investors and try to make certain that they do get full and fair disclosure.
That agency is supposed to be the SEC. But when regulators pushed Bank of America to buy Merrill Lynch, the SEC was kept in the dark.
In Washington, I'm Steve Henn for Marketplace.
Comments
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From Port Washington, NY, 05/24/2009
The followup to this story should entail more than blame-laying (a great temptation, probably fully warranted) - and go to what policies are being put in place to ensure transparency for such transactions in the future.
-The Transparency Wonk
From Bethesda, MD, 04/23/2009
What does he mean he was "pressured". He's a 62 year old multi-millionaire CEO of a huge bank. Was he afraid they would send him to GITMO? What does he mean pressured? Does this guy have any backbone at all?
From NC, 04/23/2009
Serious indeed. While much attention will be focused on Paulson and Bernanke for (seemingly) overstepping their authority, that does not absolve the BOA Board of their responsibility.
From Greendale, IN, 04/23/2009
This is an example of "agency capture" and is very troubling indeed. The timely disclosure to investors is critical and undue influence on people or intimidation tactics are not diplomatic nor an acceptable code of conduct. This needs to be investigated and handled properly for this is a serious governance matter for the US.
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