The New York attorney general on Tuesday issued subpoenas to former Merrill Lynch chief executive John Thain and Bank of America’s chief administrative officer, J. Steele Alphin, amid an investigation into bonuses Merrill paid executives just before being sold to Bank of America.
Thain, 53, was serving as the head of the newly combined company’s wealth management division before he resigned last week. The resignation came shortly after reports surfaced that billions of dollars were paid to Merrill executives in late December.
Those bonuses were paid as Merrill was about to report a $15 billion fourth-quarter loss, and while Bank of America was seeking more federal funds to help it absorb the mounting losses at the New York-based investment bank.
Attorney General Andrew Cuomo’s investigation will center on trying to determine why the timetable for paying the bonuses was moved up to December from its normal period in January; who knew about the bonuses; and how Merrill could justify spending billions of dollars on bonuses knowing its was on the brink of reporting a multibillion loss for the quarter, a person familiar with the probe told The Associated Press. The person spoke on condition of anonymity because the investigation is ongoing.
Bank of America has said in recent days it knew about the bonuses, but had no authority over the payout because the Merrill sale had not been completed. On Monday, Bank of America spokesman Scott Silvestri said: “John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation at Merrill Lynch. We had no legal right to challenge it.”
Charlotte, N.C.-based Bank of America did not immediately return calls seeking comment Tuesday about the subpoenas.
The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off the most intense period of the financial crisis.
Bank of America has received $45 billion in funds from the government and a guarantee protecting it against billions of dollars in losses on risky investments – mainly from Merrill – as it looks to strengthen its balance sheet amid the ongoing credit crisis.
Amid the investigation into the Merrill bonuses, the New York attorney general’s office also said it will investigate executive compensation for all institutions that have received federal funds as part of a $750 billion investment program run by the Treasury Department.
The attorney general’s office will work in conjunction with a special inspector general, Neil Barofsky, who is reviewing banks’ use of the government-invested funds.