Bank of America Corp. may be able to prevail in its Merrill Lynch & Co.-related legal battles, but charges against executives would probably result in settlements paid by the individuals, legal experts said.
A protracted legal fight could also make it tougher for chief executive Ken Lewis to hold on to his job, they said, although the Charlotte bank said the board continues to have confidence in his leadership.
On one legal front, South Carolina's second-largest bank is waiting for the Securities and Exchange Commission to respond to a judge's rejection Monday of a $33 million settlement with the bank over Merrill bonuses.
On another, the New York attorney general's office has told the bank it is considering charges against individuals over Merrill-related issues.
The SEC has a number of options, experts said, ranging from dropping the case to going to court. It could consider coming back with charges against individuals, but the agency has already told the judge it has found no evidence to support such charges.
New York Attorney General Andrew Cuomo could be the bigger concern because he can act under a wide-ranging New York securities law known as the Martin Act. If he files charges, he will also have the advantage of trying the case in New York courts.
Bank of America spokesman Jim Mahoney said the bank continues to have conversations with the New York attorney general's office. "We're very clear in our mind that there was no fraud involved in this and that any charges related to this would be without merit," he said.
As for the SEC case, the bank is prepared to go to court, Mahoney said, noting the next move is probably up to the SEC. The agency has said it's reviewing U.S. District Judge Jed Rakoff's order.
At issue in both cases is whether Bank of America properly disclosed Merrill bonuses in the proxy statement sent to investors before the Dec. 5 shareholder vote on the deal.
The SEC alleged last month that the bank misled investors because the proxy statement indicated Merrill had agreed not to pay year-end bonuses without the bank's consent. The bank, however, had already agreed to let Merrill pay up to $5.8 billion in bonuses in a provision of the merger agreement that was not disclosed. The omission was "materially false and misleading," the SEC charged.
In both cases, charges against individuals probably would be civil, not criminal, experts said. It's not clear which individuals could be named, but if Lewis faces charges or is dragged deeper into the investigation, it could undermine his position with a revamped board of directors, said J. Robert Brown, a University of Denver law professor.
Lewis, 62, has said he would like to at least guide the company through the current turbulence but probably wouldn't stay past age 65.
The notion that Lewis would be deliberately involved in misleading shareholders about the Merrill vote was "beyond realistic," Mahoney said.
Charges against individuals could force the bank to reveal more details about who knew what and when, said James Cox, a Duke University law professor. That could lead to a "true come-to-Jesus moment" within the bank, he said.