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.

Reyes is so-o not off the hook; Brocade and stock option backdating

Recall the backdating drama of Brocade Communications and its former CEO Gregory Reyes? It was hot stuff for awhile, and spawned umpteen cases, including criminal allegations against Reyes. Reyes' guilty verdict was reversed over the summer due to prosecutorial misconduct, but AmLawLitigation Daily is reporting the rumour that the case is about to be retried. Recall: Reyes' 21 month sentence was stayed as a result of the summer reversal.

You can read more here.

Hertz withdraws suit against rating agency

Otherwise titled, how Hertz behaves like your mother-in-law.

I mentioned briefly here about Hertz filing suit against rating agency Audit Integrity over comments the latter made in a September 2009 report. Based on Hertz's public disclosures, Audit Integrity reported that Hertz was one of twenty possible companies "likely to go bankrupt or suffer severe financial distress."

Hertz wrote Audit Integrity soon after, alleging incomplete conclusions and cc:ing the other nineteen companies. Ultimately, Hertz fought the good fight alone: filing litigation in September in New Jersey state court alleging defamation and trade libel. Audit Integrity stood by its research and report, however. Audit Integrity even issued an October press release accusing Hertz of "blatant attempts to induce nineteen companies to consider filing lawsuits" against Audit Integrity. The rating agency then sent an October letter to the SEC asking for an investigation into Hertz's behavior and possible collusion. How's that for calling a bluff?

Hertz "quietly" withdrew the suit before Thanksgiving. A spokesperson for the company explained that in the first place, Audit Integrity did acknowledge in its September report that Hertz's risk exposure was low. Additionally, Hertz's financial outlook has improved since the September Audit Integrity report.

You can read a full account here.

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.

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).

Wells Fargo repaying its clients $1.3 Billion over auction rate securities ("ARS")

I wrote over the summer regarding New York Attorney General Cuomo's continuing campaign for state governor, that then was taking the form of threatening litigation against Charles Schwab for refusing to take responsibility or pay liability to compensate investor loss on auction rates securities ("ARS").

Briefly, the hullabaloo on ARS ... they were (the ARS market collapsed in February 2008) a financial product with variable interest rates that were determined at auction. They were represented by the banking industry as liquid; that despite the instruments frequently coming in the form of debt bonds assigned lengthy time periods, that investors would always be able to sell the ARS at the next auction. Auctions can and do fail, however: if there are not enough buyers and sellers participating, the auction fails and ARS holders are prevented from making their allegedly liquid assets liquid.

Dealbreaker posted today that Wells Fargo has bitten the bullet and is repaying clients who bought the product, to a tune of $1.9 billion. The bank is also paying a penalty of $1.9 million for misrepresenting to clients the product's liquidity. Keep in mind that Wells Fargo sold nearly $3 billion in ARS.

Wells' agreement was reached with the state securities regulators from California, Georgia, Missouri, Oregon, Texas, Utah, and Washington. The $1.9 million penalty fee is to be distributed to these states.

Back to Schwab quickly: Chuck came out angry and swinging at Cuomo over the summer, but there has been little indication from either party since of any escalation of the matter. I don't think for a moment that means the matter is closed, and perhaps the recent payments by Wells Fargo will recall to Cuomo his initial endeavor.

Tom Petters' Ponzi Scheme: $3.65 Billion

It has been speculated that the Petters ponzi trial (and conspirator trials) are getting less attention from the media and financial community in light of contemporaneous ponzi schemes: Bernie at $50 Billion and Stanford at $7 Billion.

Here's a guy who has a dicey history - college drop-out, once worked at Radio Shack and had a number of failed businesses, and was treated in rehab for a cocaine habit - turn into a billionaire for the second half of his life. Americans love a good comeback story. At the height of his success, he ran Petters Worldwide, which was a larger financial conglomerate that owned over four dozen smaller companies. Smaller is misleading; among the companies included were Polaroid (which has since filed bankruptcy paperwork), Sun County Airlines (also on the bankruptcy train), and Fingerhut. Petters was under control of substantial assets. And to think: both his legitimate and illegitimate business endeavors began with a wholesale liquidation model.

The ponzi scheme? Petters duped creditors and investors by creating false documentation of transactional activity to evidence the purchase and sale of home electronics. Allegedly, Petters bought home electronics at liquidation prices, and then made a profit by selling the electronics to larger retailers at an inflated price. The scheme ran for over a decade, and involved a number of people close to Petters. This includes a close staff member (who ratted him out to the feds), an ill reputed lawyer who laundered money for Petters through a private bank account, and a hedge fund manager that represented to creditors and investors that he frequently cashed-out Petters transactions through his hedge fund.

Conspirator trials have largely been concluded, but Petters himself is on trial right now in the District Court for Minnesota. He faces numerous criminal charges that, if convicted, threaten a potential life sentence. Prosecution rested on Monday and defense is currently presenting its case. Petters himself was on the witness stand yesterday.

Always makes for good drama! FWIW, you can check it out via the AP, Bloomberg, or the WSJ.

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.

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.

What if Bank of America had acquired Lehman, instead?

It's a question loosely floated by author Andrew Ross Sorkin in his new book, Too Big To Fail: the Inside Story of How Wall Street and Washington Fought to Save the Financial System - and Themselves. In an excerpt published on Dealbreaker today:

As the dinner was ending, Mr. Geithner, approached Mr. Lewis and, leaning close, whispered, “I believe you have a meeting with Dick.” “Yeah, I do,” Mr. Lewis replied.

Mr. Geithner gave him directions to a side room where the two could speak in private. He had apparently already given Mr. Fuld the same instructions, because Mr. Lewis noticed him across the room looking back at them like a nervous date.

* * * * * * * * * * * * *

Seeing Mr. Fuld start to walk in one direction, Mr. Lewis headed in the other; with half of Wall Street looking on, the last thing either of them needed was to have word of their meeting get out. The two men eventually doubled back and found the room. Mr. Fuld explained that he would want at least $25 a share from Bank of America to buy Lehman; Lehman’s shares had closed that day at $18.32. Mr. Lewis thought the number was far too high and couldn’t see the strategic rationale. Unless he could buy the firm for next to nothing, the deal wasn’t worth it. But he held his tongue.

Two days later, he called Mr. Fuld back.

“I don’t think this is going to work for us,” Mr. Lewis said as diplomatically as he could, while leaving open the possibility that they could discuss the matter again.

Hat-tip: Dealbreaker.

Ken Lewis takes no salary or bonus for 2009!

No worries - Dude takes home over $100 million in a retirement package regardless (which conveniently for him, was arranged before BofA received federal monies and came under the supervision of Treasury's Special Master for TARP Executive Compensation, Kenneth Feinberg).

I posted earlier today about Feinberg and AIG, but Feinberg has struck again: he has knocked Lewis' $1.5 million base pay to zero - and Lewis has agreed. Lewis, in fact, will have to repay $1 million back to BofA for salary already received this year.

Hat-tip: WSJ.

Photo credit: Dealbreaker.

New BofA General Counsel: Edward O'Keefe

As an introductory remark, recall BofA is facing investigations/suits from NY, OH, and NC attorney generals, the SEC and DOJ/FBI, and almost two dozen shareholder suits. Dude - if he can juggle this, that's a lot of lateral value, right?

Corporate Counsel has an interesting post today about the new GC, and who he's reporting to (evidently to the Chief Administrative Officer [HR-ish] and not to the CEO; reported as unusual). Of course there's some discussion of how this indirect reporting method may have contributed the current BofA dramas. Check it out here.

Internal BofA Emails Starting to Hit the Press (Contemporaneous to slashing s/h dividends to 1¢ per share)

Apart from the shareholder quip, I doubt this exchange is actionable, but given BofA's recent waive of privilege and subsequent (over)production of documents to various federal and state bodies, news reports like this are going to be rampant over the next several months. FWIW - enjoy!

Between BofA Directors Chad Gifford ("CG") and Thomas May ("TM") the day BofA cut dividends to 1¢ per share; emphasis in original.

CG: Concentrate on the phone!!!

TM: Screw You.

CG: Unfortunately, it's screw the shareholders!!

TM: No trail.

CG: Only stated in the context of a horrible economy!!! Will effect [sic] everyone ...

TM: Good comeback, [expletive].

CG: Amaaazing ...

Hat-tip: Boston Globe.

BofA Board Waives Privilege: produces documents otherwise protected by attorney-client privilege

The WSJ reported last night that BofA's board voted Friday to waive it's attorney-client privilege, producing documents to various moving parties regarding the Merrill merger. Specifically, the documents produced will be between BofA and outside counsel regarding Merrill 4Q08 losses, the Merrill 2008 bonuses, and the manner and extent those bonuses would be publicly disclosed.

I have followed the BofA and Merrill matter closely (See e.g. here and here). Recall briefly that as various government and plaintiff investigations proceeded, BofA executives maintained they executed the Merrill merger and Merrill bonus disclosure per the advice of outside counsel. Then when asked what counsel advised, BofA executives indicated such information was privileged. BofA maintains they have done nothing wrong.

Big Law implicated in the matter? BofA outside counsel during the merger was Wachtell; Merrill counsel during the merger was Shearman Sterling. Current BofA counsel, as regards the various investigations into the Merrill merger, include Cleary Gottlieb and Paul Weiss.

BofA for Today: UPDATES

BofA is simply the gift that keeps on giving.

The Board's move to replace Lewis as CEO is growing more problematic than anticipated, and creating some waves. There are concerns that names being floated are not worthy ("tainted" by the Merrill merger decisions).

Ken Lewis' retirement pay will comfortably total over $100 million, in accrued benefits and deferred compensation (including stock). Despite Lewis' performance up to the Merrill merger (that largely made BofA the titan it is today), people are clamouring for Czar Feinberg to veto that figure. No comment from Feinberg's office.

On top of this: there are rumblings about what can Lewis was advised by his GC at the time of the Merrill merger, and if he actually ignored the counsel. I suspect this rumour is going to grow between now and the time of the SEC trial ...

Which, by the way, has been moved to March and is now a jury trial.

Regarding the various shareholder matters? Earlier this week, a major BofA shareholder filed a document with the SEC making various demands on the BofA board (GC should talk, and start an internal investigation by an other outside counsel). Separately, a motion to dismiss a shareholder suit is occurring next week in Delaware (a request has been filed with the court to webcast the matter).

BofA UPDATES: Emergency CEO and Some Federal Pressure (but not to hide the bonuses)

Good Morning! Two quick notes, reported across the media outlets yesterday afternoon and this morning:

Preceding Ken Lewis' signal for early retirement, the company created a committee to name an emergency CEO. Post-Lewis-announcement, the efforts have been accelerated and a contingency plan is expected to be submitted to the board for approval this week. This contingency plan is also expected to be submitted to government regulators for approval (BofA received TARP funds). Pending both approvals, the plan would only come into affect if the current legal drama forces Lewis to step down even earlier than announced.

Separately, an other BofA committee is investigating long-term replacements for the CEO. The final list will also be submitted to the board and the federal government for approval.

And finally, TARP Special Inspector General Neil Barofsky was also investigating the matter of whether the federal government unduly pressured BofA into the Merrill deal. Barofsky concluded that while Fed and Treasury pressure was applied to BofA to complete the deal, federal officials did not advise withholding public disclosure of the Merrill bonuses.

*Happy*Tuesday*

Can Ken Lewis take the fall for all of this? Bank of America.

It’s hard to find television this entertaining; I mean, really.

Ken Lewis announced his resignation as CEO of BofA on Tuesday. Although sometime in 2010* is indicated as his end-date, there is no conclusive date yet. Too, no successor has been named (although a CEO Committee is being formed today). The Board certainly must have been anticipating this, as they only met last week to discuss the escalating legal issues facing the company – and Lewis - as a Congressional deadline for more information came and went with a tardy BofA response (they’re submitting more documents to the House Comm. on Oversight and Gov. Reform). (Teaser: commentators at CorporateCounsel actually think the federal government didn’t bully BofA into the merger, but that BofA in fact bullied the federal government).

Congress isn’t the only dog in this park, though. There are a number of state suits moving ahead against BofA, including NYAG Cuomo, NCAG Cooper, and OHAG Cordray (filed in S.D.N.Y. and moving quickly). There are a number of federal investigations moving against BofA, including the SEC and an alleged DOJ and FBI criminal investigation. There is also (and what I suspect to be only the beginning) a number of civil suits: including the dead-in-the-water suit seeking 1,784 billion trillion in damages, the class action by Wolf Popper, the shareholder suit in Kansas …

Had enough?

As regards the SEC matter, both the government and BofA filed a case management plan last week that stipulates a February trial date. BofA also submitted trial filings last Friday, available here via AmLawDaily (their response remains consistent throughout the several briefs in the matter: we did nothing wrong). Apart from a trial, commentators have speculated the parties could submit a new settlement to Judge Rakoff, appeal Rakoff’s September decision, or the SEC could either drop the complaint altogether or proceed with an administrative hearing.

*UPDATE added 10/02/2009 at 2pm: Lewis originally intended to continue as CEO until the end of 2010, but is now apparent he will hold his executive position only until the end of 2009.

Photo credit: AFP/Getty Images via WSJ.