Experts: Cuomo has big gun in this duel

Steven Thel in The Charlotte Observer, February 05, 2010

Media Source

By Christina Rexrode
Posted: Friday, Feb. 05, 2010

The showdown brewing between New York Attorney General Andrew Cuomo and former Bank of America CEO Ken Lewis emphasizes political and personal twists in the bank's long-running fight to defend its purchase of Merrill Lynch. It also puts pressure on Lewis to settle the new civil charges, some experts say.

Cuomo charges that Lewis, the bank and another bank executive, Joe Price, pushed through the Merrill deal by duping shareholders and government officials. It's unclear how big any potential fines would be if the defendants lose the civil cases. Cuomo also left open the possibility that he could issue criminal charges later.

"You don't necessarily have to go for the throat immediately," said William K. Black, a former bank regulator who now teaches at the University of Missouri-Kansas City.

Cuomo has wide-ranging power over the bank thanks to a New York securities law called the Martin Act. Steve Thel, a law professor at Fordham University in New York, said the act gives Cuomo broad leeway in the documents he can demand. It also can allow Cuomo to win a conviction without proving that Lewis acted with intent to mislead.

Thel said it's likely that Lewis will settle the case because the Martin Act makes Cuomo "a very hard guy to argue with."

"He can tie a bank like this up in knots," Thel said.

Also on Thursday, the Securities and Exchange Commission announced that it would like to settle its Merrill investigation rather than go to trial on March 1.

There's a political element for almost everyone involved. The SEC is under tremendous pressure to be tough on crime after botching the Bernie Madoff scandal. Lewis, 62, wants to protect his own reputation. And Cuomo, 52, is likely to run for governor this year and, like his predecessors in the New York attorney general's office, he's eager to cultivate an image as a hard-charging, populist-leaning sheriff of Wall Street. The son of former Gov. Mario Cuomo and the Housing and Urban Development secretary for President Clinton, he's no stranger to the spotlight.

Lewis is a well-respected manager who built the largest bank in the country, but he's never been known for having a charming personality or being obsequious to investigators and lawmakers.

"Ken Lewis doesn't live in New York, and if you are running for office like Mr. Cuomo, picking on a New Yorker such as (former Lehman CEO) Dick Fuld or someone else could be much more difficult," Ray Groth, adjunct professor at Duke University's business school, told Bloomberg News. "Ken is very low on the schmooze factor and politicians love to be schmoozed, flattered and catered to."

Several securities experts on Thursday noted the difference between the aggressiveness of Cuomo and the gentler tack of the SEC, which never tried to charge any of Bank of America's individual executives and has said that the bank did not act with intent to mislead.

Black, the former bank regulator, says the SEC's proposed settlement would make it difficult for future investigations to file harsher charges against the bank. He called the SEC "the lapdog that doesn't remember how to use its teeth," and the Justice Department "the guard dog that doesn't even appear."

"And then you've got this little dog, the Chihuahua, trying to play the role of the SEC and the Justice Department," Black said, referring to Cuomo's relatively small office. "It's kind of heroic but it's less frightening on the part of Bank of America."

An SEC spokesman declined to comment beyond Thursday's filings.

The Justice Department has looked into the Merrill deal, according to knowledgeable source who spoke to the Observer in the fall. A Justice Department spokesman didn't return a call for comment on Thursday.

Also on Thursday, Rep. Edolphus Towns, who led a House committee's investigation of the Merrill deal, said he has no plans to reopen it.