On February 4, New York Attorney General Andrew Cuomo, joined by Neil Barofsky, the special inspector general of the Troubled Asset Relief Program, announced civil fraud charges against Bank of America, former Chief Executive Officer Kenneth Lewis and former Chief Financial Officer Joe Price for failing to disclose material information to shareholders prior to their vote to approve the merger with Merrill Lynch. In the complaint, Cuomo also alleges that, once the merger was approved, Bank of America management manipulated the federal government into saving the deal by falsely claiming they would back out without bailout funds. The lawsuit seeks unspecified monetary damages and other remedies.

The charges were announced on the same day that the SEC separately announced that it had filed a motion seeking court approval of a proposed settlement with Bank of America regarding SEC charges of a failure to disclose employee bonuses and financial losses at Merrill Lynch before shareholders approved the merger of the companies in December 2008. Under the terms of the proposed settlement, Bank of America would be required to (1) pay $150 million, for distribution to shareholders harmed by the Bank’s alleged disclosure violations, and (2) strengthen its corporate governance and disclosure practices for a period of three years.

The SEC previously filed two sets of charges in the U.S. District Court for the Southern District of New York. On August 3, 2009, the Commission announced a $33 million settlement of charges against Bank of America for violating the federal proxy rules by failing to disclose, in proxy materials soliciting shareholder votes for approval of the merger, its prior agreement authorizing Merrill to pay year-end bonuses of up to $5.8 billion to its employees prior to the closing of the merger. Judge Jed S. Rakoff rejected that settlement.

On January 12, 2010, the Commission charged Bank of America with failing to disclose extraordinary financial losses sustained between October and November 2008 at Merrill Lynch prior to a Bank of America shareholder vote to approve a merger between the two companies. The proposed settlement covers both sets of charges and is subject to approval by Judge Rakoff. In a United States District Court hearing in Manhattan on Monday, Judge Rakoff said he expected to rule on the settlement by February 19th. However, he is reported to have stated that the settlement was “still quite small” and that $300 million or $600 million would be a more appropriate settlement amount. If Judge Rakoff rejects the proposed settlement, the case on the first set of charges is set for trial on March 1, 2010.