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April 23, 2009 (LPAC)—Lyndon LaRouche today called for a criminal investigation of the role of former US Secretary of the Treasury Hank Paulson and U.S. Federal Reserve Chairman Ben Bernanke in fraud committed in the Bank of America takeover of Merrill Lynch. LaRouche said: "This is very nasty and punishable. We have had enough pain. The time for punishment has come."

LaRouche was responding to a report from New York Attorney General Andrew Cuomo on testimony taken from Bank of America CEO Ken Lewis in February. Lewis testified that Paulson and Bernanke instructed him not to disclose Merrill Lynch's financial condition to shareholders before its takeover by Bank of America. Under the law, banks must alert their shareholders of any materially significant financial losses. Disclosing losses at Merrill, which eventually totaled $15.84 billion for the fourth quarter, could have given Bank of America's shareholders an opportunity to stop the deal and let Merrill be subjected to financial bankruptcy reorganization.

Lewis testified over four hours in Cuomo's New York offices on Feb. 26. The WSJ provided a transcript of the following exchange:

Cuomo: Were you instructed not to tell your shareholders what the transaction was going to be?

Lewis: Over the short term, yes.

The Wall Street Journal previously reported on Feb. 5, that Lewis agreed to proceed with the Merrill merger only after Paulson and Bernanke said he and his board would lose their jobs if Bank of America backed out of the deal. Lewis's testimony with the New York Attorney General's office corroborates that account. Cuomo's office says it has been unable to gather a full picture of the Fed's role in the December discussions because the Fed has invoked a regulatory privilege, allowing it to keep some documents confidential, in an effort to obstruct the investigation.

Lewis previously said he first considered backing out of the Merrill deal on Dec. 13, when he said his CFO told him projected after-tax losses were "about $12 billion." In fact, on Dec. 17, Lewis flew to Washington to declare that he was through with Merrill. However, at this point Lewis was directly threatened mafia-style by Paulson.

During his testimony, Lewis described a conversation with Paulson in which Paulson made it clear that Lewis's job was at stake. Lewis still was considering invoking his legal right to terminate the Merrill deal. Lewis phoned Paulson to discuss the matter. In sworn testimony, Lewis said: "I can't recall if he said, 'We would remove the board and management if you called it [off]' or if he said 'we would do it if you intended to.' I don't remember which one it was," Lewis said. "I said, 'Hank, let's de-escalate this for a while. Let me talk to our board."

In a letter to Congress released today, Cuomo said Paulson "largely corroborated Lewis's account." According to Cuomo, Lewis said he was instructed by federal officials not to disclose Merrill's losses, his desire to back out of the merger, or about the intervention of regulators. Lewis testified that he asked Bernanke to "put something in writing" regarding the U.S. government's plan to support Bank of America's acquisition of Merill in view of its losses. Paulson called Lewis and said, according to Lewis, "First it would be so watered down, it wouldn't be as strong as what we were going to say to you verbally, and secondly, this would be a disclosable event and we do not want a disclosable event."

Shareholder's voted to approve the purchase on Dec. 5 and the deal was completed on Jan. 1. The New York attorney general's office is cooperating with the U.S. Special Inspector General Neil Barofsky in investigating the circumstances surrounding $3.6 billion of bonus payments to Merrill employees just before the takeover was completed on Jan. 1.