Executive Compensation: Updates

Brief on my own forty-two cents this go-'round, but heavy on the inbox house-cleaning ...

Backdating

Juniper Networks settled a shareholder derivative suit for $169 million. This is the third largest settlement for such suits (United Health at $900 million, Comverse at $225 million, followed by fourt-place Broadcom at $160 million). Speaking of Broadcom, while the SEC dropped its litigation against several Broadcom execs and general counsel, legal analysts have chastised the company for capitulating to shareholders due to "litigation fatigue."

Business Bankruptcy

Recently U.S. Bankruptcy Judge Kevin Carey approved one of several compensation proposals submitted by the Tribune Company (think Chicago Tribune and LATimes). Objections were filed to the plan, but the Judge found 11% of the company's 2009 cash flow as apportioned to 720 managers in bonuses "incentiv[izing]". A little tongue-in-check there, but it amounts to $45.6 million in manager bonuses.

Bank of America (BofA)

Let's start with the uncontroversial: formerly of Merrill Lynch, John Thain finally found work. As a fellow job seeker, *yay* John.

The Cuomo complaint is making the rounds: allegations that BofA and outside counsel Wachtell had in fact agreed to disclose 4Q08 Merrill losses, but the decision was reversed later by Mayopoulos alone; Wachtell "marginialized." Allegations also include Mayopoulos being fed inaccurate information by BofA executives regarding the losses (and therefore affecting his judgment as regards disclosure).

And so it's no suprirse then, that S.D.N.Y Judge Rakoff has not only refused to approve the newly proposed $150 million settlement, but gave SEC counsel a hard time over why NYAG Cuomo's complaint is different, and has recently asked for ALL discovery materials regarding BofA's former general counsel Mayopoulos' dismissal.

Oh, and if any of this behaviour suggests that a substantial bonus payment to various BofA employees would be a PR nightmare, you apparently would be wrong: $4.4 billion goes out to Ibanking employees for their 2009 performance (that's an average bonus of $400,000 per person). Though in fairness: those who are receiving larger bonuses will receive stocks vesting over a several year period.

Compensation Czar

So AIG paid-out contractually agreed to bonuses this year, and the whole of D.C. is trying to determine how to stop it.

Pay Practices

But AIG has heard enough of the populist outcry, and so re-jiggered its pay practices. Analysts and commentators still suggest the jiggering will not satisfy regulators.

Barclay's also tweaked their pay packages and structures. The President and Chief Executive waived their 2009 bonuses; other executives' compensation was deferred and other bonuses were paid in stock.

Mr. Blankfein at Goldman, however, took a $9 million all stock bonus for 2009. The bonus is considered conservative, as Blankfein took a $67.9 million bonus in 2007. No "magic formula" apparently.

Re-Regulation

The Administration's banking plan has Wall St. upset, mostly because cash cow proprietary trading is on the chopping block. Paul Volcker has been quite clear: either have access to federal backing or continue the proprietary trading.

It is little wonder lobbying efforts are up. Is "up" a dimunitive term here? FWIW: Former Treasury Secretary Henry Paulson doesn't like the plan.

The Administration's bank plan also contains disincentives for banks that grow too large to fail. On this theme: JPMorgan got a little bit bigger recently, and then one of its Athens' offices was bombed.

Recall rampant media discussion about the Webb-Boxer Taxpayer Fairness Act - the "Jobs Bill?" A banker tax may be included among the amended provisions. Proposed as a windfall bonus tax, the first $400,000 is exempt.

Separately, Senator Dodd's bank reform legislation has an impasse to overcome ...


Photo credit: Oliviadei.

BofA settles with the SEC, is however sued by NYAG Cuomo

Busy day for BofA. I haven't had the opportunity to read through the 30-some page settlement proposal and 90 page complaint yet, but here's the surface data.

The SEC announced today it reached a settlement with BofA as regards both pending suits: failure to properly disclose Merrill bonuses, and separately, failure to properly disclose Merrill 4Q08 losses, to BofA shareholders prior to a proxy vote on the Merrill merger. The settlement submitted to S.D.N.Y. Rakoff for approval includes a $150 million fine and a remediation plan. The $150 million is to be distributed to BofA shareholders on an as yet undetermined schedule. The remediation plan includes new corporate governance for BofA over the next three years: retention of an independent auditor to scrutinize disclosure procedures, as well as "disclosure counsel" who will report to the Board's Audit Committee; the CEO and CFO will certify that they have personally reviewed annual and merger proxy statements; new conflict rules for members of and consultants to the Board's Compensation Committee; a non-binding advisory shareholder say-on-pay vote on matters of executive compensation; and incentive compensation practices will be disclosed on BofA's consumer website.

Half a dozen things come to mind. First, one of the principal reasons Judge Rakoff rejected the Summer 2008 settlement was he felt it unfair that shareholders would bear the burden of the mistake BofA corporate actors made. This has been part of Rakoff's theme – unending in that it has never been answered – that individual actors are responsible for making the decision not to disclose the Merrill bonuses. It remains to be seen how Rakoff will respond to the new terms of the settlement. And I'm not quite certain how the shareholders will benefit from paying themselves a sort of dividend payment on the matter (because although the distribution schedule is as yet undetermined, that's effectively what will happen, correct? BofA pays the fine to the SEC, and then the SEC redistributes the fine to BofA shareholders?).

And second, the SEC includes a lengthy laundry list of 'thank yous' in its public relations release, including the FBI, NCAG Cooper, and TARP's Special Inspector. There has been months of rumor that Cooper and the FBI were working in tandem on separate charges >> I am eager to have the opportunity to read the settlement proposal to see if Cooper has waived any further litigation with the SEC settlement.

And although the SEC also thanks NYAG Cuomo's office, we all know now that Cuomo certainly made no such waiver. Cuomo's office has filed a civil securities suit under the Martin Act against BofA, its former CEO Ken Lewis (now retired), and former CFO Joseph Prince (since stepped down). Cuomo alleges the defendants misled both the public and government actors as regards the Merrill acquisition. Via telephone with the WSJ (NYTimes?), Cuomo remarked, "We believe bank management understated the Merrill Lynch losses to shareholders to get shareholders to approve the deal then [turned around and] overstated their ability to terminate the agreement to get $20 billion from [the] federal government. That is just fraud." Cuomo continued, alleging BofA "exploited" the economic fear in 2008 and "defrauded" the taxpayers. Uber interestingly, Neil Barofsky, Special Inspector General for TARP, was also on the call.

BofA has denied the allegations and indicated it will mount a defense.

Copies of the SEC settlement proposal and NYAG complaint are here. The story is being reported everywhere, apparently first by the NYTimes, but also at AmLaw, Bloomberg, and the WSJ. This blawg's discussion of the BofA matter is here.

Image credit: BofA.

June 29, 2010 – Trial date for SEC v. BofA, Part II

I have to admit that when news hit last month of the SEC's second amended complaint - and then second independent complaint - I was content at the time to read the headlines and news reporting alone. In addition to alleging BofA violated federal securities laws by not properly disclosing the Merrill bonus agreement to BofA shareholders prior to the proxy vote on the merger, the SEC filed new allegations that BofA violated securities laws by not properly disclosing Merrill 4Q08 losses to its shareholders prior to the same vote. The usual remedies are sought: injunction and civil penalty.

A short article ran last week in AmLaw, however, that brought me back to the SEC complaint itself. The gist: the agency's arguments are incompatible and not compellingly strung together. The critique argues that despite S.D.N.Y. Judge Rakoff insisting on accountability by individuals, the SEC continues to chase the corporation itself, and has failed to make any allegations against any BofA officers, directors, or legal counsel. The article ironically states that a corporation is nothing but a vehicle at the behest of individuals. Although the SEC did describe BofA's officers' and counsels' decisions in the complaint as "negligent" and "erroneous," the article points out that such is not unlawful. Further, the SEC's allegations in essence describe Wachtell Lipton as an incompetent advisor. A notion that is infrequently heard, and one that neither Wachtell or BofA has advanced as a matter of defense.

It was an interesting point, and so I went back into the complaints (the second independent complaint is virtually a cut/paste from the material in the second amended complaint). The timeline alleged is really interesting, and the SEC even paints the BofA officers and directors in a substantially more positive light than the media did over the course of 2009. (I am actually sitting here feeling a little bit bad for Ken Lewis.)

September 13th and 14th, 2008. The proverbial financial sky was falling, and BofA and Merrill were in discussion over a possible merger. It was unknown at this time the enormous 4Q08 losses Merrill would sustain (and in all Stef fairness, reasonably so).

September 15th. The parties announced successful negotiations had produced a merger agreement. The deal was valued at $50 billion. BofA would issue shares to Merrill shareholders, issuing 0.8595 BofA shares of common stock for every share of Merrill common stock. The exchange represented a $29 value for each Merrill share, which was a 70% premium from the trading price on Sept. 14th.

October 16th. Merrill issued a 10-Q and announced a net loss of $5.2 billion for 3Q08. The explanatory notes indicated a substantial write-down for selling CDOs backed by non-prime residential mortgages and the terminating related guarantees. The market responded positively to the news, anticipating a net income in 4Q08; the SEC alleges BofA management rode the same optimism wave in response to the news.

November 3rd. BofA and Merrill filed a joint proxy statement, principally for the purpose of soliciting shareholder votes to approve the merger. Separate shareholder meetings were planned for December 5th. BofA also filed a registration statement on Form S-4 to register the issuance of BofA shares to Merrill shareholders, per the merger agreement.

November 12th. Since the Sept. 15th merger announcement, BofA was kept abreast of Merrill's performance. On Nov. 12th Merrill gave BofA an internal forecast report estimating a 4Q08 net loss of $5.4 billion. BofA consulted with in-house and outside counsel as to whether the loss rose to the level of a public disclosure. Both counsel indicated a disclosure was not necessary, reasoning the proxy statement and recent filings describing the current economic environment and its potential impact on Merrill constituted sufficient disclosure. When BofA disclosed to Merrill that a public disclosure may be forthcoming, Merrill also agreed with in-house and outside counsel.

December 3rd. Merrill gave BofA an updated internal forecast report estimating a $6.4 billion net loss for October and November; the 4Q08 net loss was anticipated to be over $7 billion. BofA again consulted with counsel, and counsel again advised that a disclosure was not necessary, reasoning the loss was within the historical range of previous Merrill losses.

December 5th. Without new information, BofA shareholders believed no fundamental changes had occurred since the terms of the agreement were reached between Sept. 13th and 14th; the Merrill acquisition was approved by shareholder vote.

Second Week of December. Merrill gave BofA an updated internal forecast reporting net loss of over $12 billion for 4Q08. BofA considered forfeiting the acquisition altogether under merger agreement provisions of a material adverse change ("MAC").

January 1st, 2009. The merger closed.

January 6th. BofA publicly disclosed that Merrill was subject to a 4Q08 net loss of $15.3 billion. BofA also disclosed it received $20 billion in TARP funds to complete the acquisition.

The SEC alleges BofA failed to make proper disclosure of the 4Q08 Merrill losses in both the joint proxy statement and the Form S-4. The SEC argues the proxy should have contained updated details of the value of the Merrill merger so that shareholders would have been able to adequately consider the merger vote. The SEC argues the Form S-4 required BofA to publicly disclose any material changes to Merrill's affairs that were not otherwise reflected in other filings, and that the form also required BofA to update the shareholders prior to the proxy vote.

Image credit: Bank of America.

ExeComp in the News: SEC Goes For the Kill, and then there's Attorney General Cuomo, AIG, and London Bankers

Bank of America. The core of the SEC charges to date (trial beginning March 1, 2010) focuses on the alleged improper BofA disclosure of the Merrill bonsues to its shareholders. The SEC has asked Judge Rakoff of the S.D.N.Y. to add an additional allegation – failure to properly disclose the Merrill 4Q 2008 losses! Rakoff has said the additional allegation can not be added to the current litigation, but the SEC can always file a new complaint. How many lawyers' kids can go through grad school on BofA's tab: check it out here, here, or here.

City of London bankers are threatening to leave town. (Really? You're going to have your spouse leave his job, pull your kids out of school, buy and sell property, and get vet paperwork done on the dog ... Really?) Though admittedly, this is a lot to handle at once: in addition to Darling's intent to levy a one-time 50% tax on bonuses equal to or greater than $ 40,700, the FSA announced recently that compensation for banking employees earning $1.6 million per year will have their compensation deferred - as much as 60% and for as long as three years! Check it out here or here.

In response to the potential 50% tax, financial firms have indicated they will just pay their employees more money (incidentally, at the cost of the shareholders). In this way, the tax will be spread out over the global resources of the organization. Okay. Or, you could just pay the one-time tax on bonuses. One-time. On a bonus.

Remember Andrew Cuomo? Yeah – he didn't think so either, so he's leveraged the Martin Act again and made a demand this week on eight companies that received government financing to disclose their 2009 bonus pool information. When is that election again? Hope it comes and goes before folks realize earlier Cuomo threats leveraging fraudulent conveyance allegations against AIG – which culminated in a very public AIG "we'll give almost all of it back" – has in fact only produced a fractional return of the bonuses. What's a candidate to do? Check it out here.

Speaking of AIG – a new GC is being named: Thomas Russo (previously with Lehman). Here's hoping he rolls with the Compensation Czar's style more easily than his predecessor. Or, maybe AIG could just pay the $183 billion in federal financing back.

Former BofA GC Mayopoulos Can't Get a Break

Sort of - he did receive nearly $ 3 million for his work 2009 work as Fannie Mae GC. That is several times the amount I owe in student loans ... several times several.

But Corporate Counsel is reporting this morning he's been pulled into the executive compensation fray. In light of the Christmas Eve announcement of federal backing for Fannie Mae, Mayopoulos' compensation is coming under discussion of "is this appropriate or not?"

Check it out here.

Photo credit: Corporate Counsel.

Bank of America, AIG, and Comverse

I have a post I am writing on dischargeable suits in business bankruptcy, but am right now pressed for time (and since we're all subject to the nightmare that is the first week back from the Holiday, am summarizing here articles I would have otherwise turned into a post >> thanks for your patience!).

AIG GC Anastasia Kelly's threat to walk in light of Compensation Czar Feinberg's December rulings on pay was real - she is in fact leaving, and with several million in severance compensation. This blawg's discussion of Compensation Czar Feinberg can be found here.

My most favorite legal actor right now, Bank of America!! As we all prepare for the March 1 trial date, Rakoff of the S.D.N.Y. ruled Monday that BofA would not be able to present expert testimony that media reports of the Merrill bonuses constituted disclosure to shareholders. This blawg's discussion of BofA can be found here.

Part of Comverse Technology Inc.'s $ 225 million stock option backdating settlement will include a $1 million contribution by former GC William Sorin (which in exchange will drop a pending suit waged against him by the company). Some of this blawg's discussion of stock option backdating can be found here.

UPDATE: executive compensation, corporate governance, and securities

I am so tired I want to scratch my eyes out. And so in lieu of going blind, I am only posting updates of some of what has transpired over the last two weeks regarding some of my pet issues. FWIW - presented here briefly to bring this blawg up-to-date. Thanks - have a *Great* New Year's!!

Bank of America

So with only two weeks left in the year, and right after they repaid their federal funding, BofA chose a new CEO ... who knew it would be the same guy who had a hand in the way the Merrill merger closed and who did not impress Congress while testifying about it. Oh, and FYI: the SEC has broadened its investigation.

Bank Closings

We're now up to 140 banks the FDIC has closed in 2009 alone. Good times.

Banker Bonuses

France follows the U.K. and levies a hefty tax on banker bonuses. Some call it "unfair."

Goldman is a veritable money machine, but there are rumblings inside that the "ethos" has changed ... which is largely of no importance to the demonstrators on the street who still want to see the firm burn.

Outgoing Morgan Stanley CEO John Mack has, for the third year in a row, rejected his year-end bonus. He noted the "unprecedented environment" and "extraordinary financial support" the federal government has used to buttress the banking industry. Morgan Stanley itself is modifying its compensation structure; nothing is definite yet, but rumour is that nearly 2/3rds of executives' pay will come in the form of stocks and will be subject to a clawback provision.

And whether you needed a rumour to confirm it: that all important meeting between banking heads and the President was more show than anything else. From whose perspective, I wonder ...

Compensation Czar

Citi Group and Wells Fargo got out from under TARP restrictions, including Kenneth Feinberg's executive compensation rulings. Good week for Citi - they also got a tax break.

It was announced just yesterday that GMAC will receive several billion more in federal funding.

And just as we learn about the inner turmoil AIG faced as it melted, we shouldn't be surprised bonuses promised to NYAG Cuomo to be be repaid are slow in materializing ... Oh, and Feinberg's recent rulings were modified in light of some fits thrown at AIG.

Re-regulation

The ABA is out to destroy it.

Barney Frank's Wall Street reform package includes significant regulation of the credit rating agencies, including offering investors the explicit right to sue the agencies.

Stock Option Backdating

Broadcom criminal suits are dismissed; all three. Just today, then, Broadcom antes up to settle outstanding shareholder suits.

Similarly, Comverse settles for a record amount, represented by our favorite counsel du jour, Wachtell.

BofA and Wachtell: people other than me scratching heads

As a young attorney, I am really interested in the long standing representation relationships between BigLaw and Corporate-dom. Like anyone else, I guess: I am watching for trends, reasoning, and what elements are persuasive.

And for all my wondering aloud earlier, I am impressed by Wachtell's continued representation of BofA. AmLaw expresses a similar interest in the matter, and reports this morning that the firm is advising BofA's Board Subcommittee regarding the CEO selection process.

Check it out here.

In Case You Missed It This Week

• Professional territorialism and the Supreme Court. ABAJournal.
  

• BofA is paying back the $45 billion they received in TARP funds - maybe it has something to do with their stalled CEO search? (payoff courtesy of Clearly Gottlieb negotiations). WSJ.
  
  
• "Where employees are on track to earn an average of more than $700,000 apiece this year;" Goldman is taking its reasonableness test to its shareholders. WSJ.
  

• Larry Summers channeling JFK to Corporate America. Politico.

• The SEC investigates irregularities, in corporate America and in its own offices. Dealbook.

• One reason the public pushes back against attorney image: when fees are larger than the damages awarded. AmLawLitigationDaily.

Photo credit: Wikimedia.

This is just good leveraging, right?

As the otherwise privileged documents in the BofA matter continue to come to light, the most salacious pieces are hitting the public sphere.

AmLaw ran an article yesterday with the clever day-to-day of how Wachtell and BofA leveraged federal aid in the Merrill acquisition. Although I am strapped for time and cannot summarize, it is important to note that apparently the federal actors were aware of BofA's strategy. Documents suggest, however, that federal actors were persuaded by the general state of the national and world economy to act.

Check it out here.

S.D.N.Y. Rakoff featured in December Issue of American Lawyer

As an FYI matter, Rakoff is featured in this month's issue of American Lawyer (subscription required). Though don't raise your expectations: no direct information is gained regarding the SEC and BofA matter pending before him.

Hat-tip: AmLaw.

BofA adds Cleary as Co-Counsel Defense to S/H Suit

I wrote earlier about my confusion with BofA's use of Wachtell Lipton for a new significant merger agreement (in light of the dramatic litigation and investigation that unfolded over BofA's handling of the other merger). It appears others are also scratching their heads ...

AmLaw reported last week that BofA has added Cleary Gottlieb as co-counsel to defend one of several shareholder suits pending against it (although the suit wasn't named in the report, it is likely the suit occuring in either the S.D.N.Y. or the Delaware Chancery Court). The why? Wachtell was defending BofA in the matter as sole counsel, but circumstances suggest that Wachtell will also be a BofA defense witness if the matter reaches trial. Cleary was added as a disinterested co-counsel. While Cleary is not similarly implicated as a BofA defense witness, Cleary is defense counsel to BofA in the SEC litigation pending before the S.D.N.Y.

BofA clean-up: Mayopoulos didn't do any deeds as regards Merrill bonuses

This is so last week, but my ocd regarding the BofA matter compels me to keep the subject up-to-date here.

Last week various BofA officals testified before the House Committee on Oversight and Government Reform. While there was discussion of Mayopoulos’ dismissal, the most interesting testimony came from Mayopoulos himself regarding whether Merrill losses triggered a material adverse change (“MAC”). Recall, a MAC would have allowed BofA to avoid the Merrill acquisition.

November 20th: Mayopoulos and outside counsel at Wachtell agreed that a disclosure on the Merrill losses was not necessary. The losses at that time were projected to be $5 billion, which were similar to previous Merrill losses and had in fact already been disclosed as expected.

December 1st: Mayopoulos was asked by BofA CFO Joe Price to examine the MAC clause of the merger agreement. Although Mayopoulos did not recall any assertion by Price that a MAC had occurred, Mayopoulos testified he advised that the Merrill losses did not constitute a MAC.

December 9th: Four days after BofA shareholders voted to approve the merger, Mayopoulos learned the Merrill losses were greater than expected ($9 billion), and he asked to speak with CFO Price asap. While he continued to think disclosure of the Merrill losses weren’t necessary, it was because he thought the estimates were guesses. He was told to wait until the next day. By noon the next day Mayopoulos was pulled from a meeting and fired immediately – no notice or reason was given.

Speculation last week suggested Mayopoulos’ firing was done so as to avoid any resistance he may have posed when BofA approached federal actors regarding a possible MAC and withdrawal from the Merrill acquisition.

Regrettably, we don’t really have any more information regarding the bonus situation. Mayopoulos testified that he neither negotiated the Merrill bonuses or participated in drafting the merger agreement or proxy materials that preceded the acquisition.

Hat-tip: Corporate Counsel.

EVERYTHING Bank of America produced to Cuomo and Congress goes to plaintiffs in the S.D.N.Y.

Bad week for BofA. For several reasons, but in the case of this post: S.D.N.Y. Judge Denny Chin ruled earlier this week that plaintiffs proceeding before him against BofA are entitled to whatever documents BofA has produced to date.

To be clear, this includes the otherwise privileged documents that BofA agreed to produce to Cuomo, the SEC, Congress ... It is speculated the protective order those documents were produced under (and was conceivably requested to prohibit any other parties from having access to these documents) can be construed as protecting from protection only those documents not already produced or requested by Cuomo, the SEC, Congress ...

Recall: a separate plaintiff's suit is proceeding against BofA in the Delaware Chancery Court, and earlier this month was awarded the right to request discovery of the same otherwise privileged documents.

Chin's order is here. Rakoff's protective order is here. BofA's litigation settlement allocation is here (joking. not really).

Bank of America's CEO Search Does Not Look Like Fun …

So we now know GMAC's Molina is out of consideration, and evidently so is Prudential's Demchak. It is rumored Demchak pulled himself out of contention due to government restraints on BofA: both in terms of his own compensation, and it is alluded, as regards the ongoing litigation and investigation regarding the Merrill acquisition.

(There is also speculation that BofA's Moynihan is being considered. Let's check his track record: BofA GC for 7 days where his law license was inactive; and his recent total lack of believability in front of Congress. Yeah - am thinking the Board is going to pass.).

Lewis leaves in six weeks; BofA has only six weeks to name executive leadership. Sounds somewhat dire … but maybe not: Chairman Massey is currently on Holiday on a boat somewhere and was inaccessible for comment (not a joke).

Playful conjecture does suggest former Merrill CEO and currently unemployed John Thain is interested in the position, however (am pretty sure that is a joke).

Buggered BofA Disclosure?

I am a little late to the game on this news, but it's important nonetheless. A while back legal commentators floated the idea that BofA's limited waiver of privilege may have been done incorrectly.

Recall that BofA waived privilege to documents protected by attorney-client privilege, but only in three instances: to the SEC in that agency's pending case in the S.D.N.Y.; to NYAG Cuomo in his pending investigation, where any litigation would occur in a NY State court; and to Representative Ed Towns (D-NY), who Chairs the House Committee on Oversight and Reform that is investigating BofA and the Merrill merger generally.

I have no particular eagerness to show procedural adeptness, so only repeat the analysis of those who are otherwise so-credentialed. The disclosure was drafted under FRE 502. The Rule allows limited disclosure to one party, without having that disclosure be expanded to unrelated parties in the course of other lawsuits. The Rule does not reference "waiver," however. BofA (and their outside counsel on this matter, Cleary Gottlieb) are alleged to have botched their filing under FRE 502 by repeatedly using the word "waiver" instead of court order. Commentators argue the difference is larger than semantics, and in fact, whatever documents BofA produced to the SEC, Cuomo, or Towns, will have to be reproduced to any other plaintiff upon request. (In which case, the only protected documents are those that have not been produced at all or to anyone).

To offer an idea of how large this production could be: when BofA filed paperwork under FRE 502 for limited disclosure, the company named 58 different law suits that should not have access to the newly produced documents.

Of course one group of plaintiffs has decided to test the waters. There is a shareholder derivative suit progressing in the Delaware Chancery Court that has requested and received permission to subpoena all documents regarding the Merrill merger from BofA outside counsel (Wachtell Lipton and Cleary Gottlieb) and to subject various executives to deposition (including former Merrill CEO John Thain). BofA defense counsel for the Chancery Court matter is Davis Polk.

The fall-out from the media attention has been predictable: more commentators indicate the waiver was done incorrectly; BofA maintains it was done correctly. FRE 502 is only a little over one year old and it is widely anticipated there will be a fight before the documents are produced.

Big Suprise there: no one wants BofA Ken Lewis' CEO job

Via Dealbreaker.

Breaking BofA UPDATE: Unlicensed Counsel

Although it doesn't go to the substance of the various litigation BofA is juggling, it is scandalous nonetheless (and BofA is sort of like Britney Spears now: everything is newsworthy). Corporate Counsel is reporting this morning that in middle of the Merrill acquisition and merger, Brian Moynihan served as an interim General Counsel for BofA for a whole 37 days. The raging gossip: for 8 of those days, Moynihan had an inactive license.

Interestingly, although I received the news this morning via Corporate Counsel and AmLawDaily, neither link is working ... (cease and desist letter?). So you can check out the story in greater detail at The Business Insider, The Boston Globe, or The Telegraph.

BofA Updates

Because you knew somewhere among the summary updates I would insert BofA news, right?

I have written here before of the “pressure” BofA may have put on federal actors preceding conclusion of the Merrill acquisition ("pressure" that is argued to have forced $20 billion in federal support for the transaction). Remember: recent revelations are a result of documents previously protected by a/c privilege being produced to investigators. Documents apparently show outside counsel turning to his left (BofA) to indicate one opinion of whether a material adverse change ("MAC") triggered an escape clause in the Merrill transaction, and then turning to his right (federal actors) and indicating a polar opposite opinion. (Recall, the MAC discussed here is the enormous 4Q08 Merrill losses). It's not looking good - the contrary opinions were literally given hours of one another.

In a related story, though not as regards the "pressure" issue, WSJ ran an interesting article on Judge Rakoff. See also (Rakoff is the S.D.N.Y. judge the SEC case against BofA is pending in front of; trial date slated for March 01, 2010). The inside trading case involving Galleon Management founder Raj Rajaratnam is also before the Good Judge. Pundits speculate this will be a second high-profile opportunity for Rakoff to skewer the SEC and its litigation strategy.

Okay - so maybe Lewis did lie? Material Adverse Change ("MAC")

Okay - so maybe Wachtell is in the clear on the Merrill matter? Lewis' character took a nose-dive this morning (yeah - just this morning ...): the recently released privileged documents will require some clarification (but suggest Lewis "misled" federal officials).

To summarize what is alleged in the press as fibs or fib-related:

• Lewis told federal officials ("feds") he knew about the large Merrill 4Q losses in December. Documents released show BofA had been following the matter since October (suggesting he knew, or should have known).
• Lewis told the feds the material adverse change ("MAC") would trigger a clause in the Merrill transactional documents, allowing BofA to escape the deal. According to the Charlotte Observer, however, then BofA General Counsel Mayopoulos told BofA executives that the 4Q loss did not constitute a MAC. Recall, Mayopoulos was fired (days before Lewis told the feds about the MAC). FURTHER, Mayopoulos testified this week to the House Committee investigating BofA, and is rumoured to have testified to all of this. The Committee actually had another hearing scheduled today, but rescheduled so it could peruse the recently released privileged documents ...

Getting good yet?

• Lewis never told the feds about Mayopoulos' advice. (The merger agreement in fact contained language that Merrill's 4Q losses were not the type that would trigger a MAC).
• There are supplemental documents suggesting Lewis had to explain (defend?) a MAC issue at a board meeting.
• Lewis then gets on the phone with the feds (separately, with Paulson and then again with Bernanke) and suggests that with federal infusion of money, BofA will forgo escaping the deal (despite the MAC) and acquire Merrill.

Hat-tip: Law.com.