Management has argued that it wasn’t aware of the magnitude of the losses, and that it wasn’t legally required in any event to disclose losses that hadn’t been made public. Various lawsuits have challenged that defense, however.
In fact, some of the details mentioned in both the shareholder and New York state lawsuits raise some serious questions. For example, Bank of America’s corporate treasurer Jeffrey Brown actually recommended disclosing Merrill’s losses to shareholders prior to the vote on December 5. At one point, he said to CFO Price that he “didn’t want to be talking [about Merrill’s losses] through a glass wall over a telephone.”
Just four days later, on December 9, general counsel Timothy Mayopoulos was surprised by the extent of Merrill’s losses, which were discussed at Bank of America’s board meeting that day. He tried to talk to the CFO, but was told it would have to wait until the following day. The next day, Mayopoulos was fired before he had a chance to discuss the increased losses. Mayopoulos was replaced by Brian Moynihan, who is now Bank of America’s CEO. This particular episode leads us to our third and final question.
3. Why was Timothy Mayopoulos terminated by Bank of America’s management?
With the economy reeling and a difficult merger to complete, it seems odd that Bank of America would terminate its general counsel “without notice or explanation” in December of 2008. It seems odder still when you consider that top management testified before Congress less than a year later that Mayopoulos, currently CEO of Fannie Mae, “was a good lawyer and had done good work in his five years at B of A.”
Bank of America executives have said the termination was part of an overall downsizing plan at the bank. In Crash of the Titans, Greg Farrell suggests firing Mayopoulos allowed Ken Lewis to find a role for future CEO Brian Moynihan, who had just resigned after being offered a new position he wasn’t pleased with.
So in the midst of one of the toughest mergers in Wall Street history, Moynihan became general counsel, even though he hadn’t practiced law in 15 years, and had an inactive bar membership. He would only stay in the role for 44 days. Ironically, Farrell reports that Lewis had assured Mayopoulos during the Merrill negotiations back in September 2008, “you’re my general counsel. I’m happy with you.”
New York State’s lawsuit offers up one detail that might be relevant here. In addition to wanting to discuss Merrill’s increased losses, Mayopoulos had also advised Bank of America’s management team that it “couldn’t call a material adverse change under the provisions” of the deal with Merrill. Calling an MAC was a way for Bank of America to possibly get out of the merger, but Mayopoulos was on the record of saying such a course wasn’t a possibility. Did Bank of America perhaps want to get rid of a general counsel whose advice was too conservative?
