Former Merrill Lynch CEO John Thain has been subpoenaed by New York's Attorney General, as part of an inquiry into executive compensation. The move comes just five days after Thain resigned following disclosures that he doled out as much as $4 billion in bonuses a month ahead of schedule and on the eve of the troubled brokerage's acquisition by Bank of America.
"Today, as part of our ongoing inquiry into executive compensation issues at institutions who have received TARP funds, my Office issued subpoenas seeking the testimony of former Merrill Lynch CEO John Thain, as well as the testimony of Bank of America Chief Administrative Officer J. Steele Alphin," Attorney General Andrew Cuomo said today. "These subpoenas are part of an ongoing inquiry into billions of dollars in bonuses paid by Merrill Lynch late last year just days before Merrill was taken over by Bank of America."
The massive bonuses were doled out in advance of a corporate acquisition fueled in part by $20 billion in government bailout funds and negotiated by the government in an effort to save Merrill Lynch from collapse.
"The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation," Cuomo said.
Cuomo's office said they wanted to bring both Thain and Alphin in under oath, since in their statements prior to the subpoenas, each said the other knew about the bonuses.
"We need to get to the bottom of that," said one Cuomo staffer. "And in addition, why were bonuses even given out in the first place since the firm had their worst fourth quarter ever, losing $15 billion."
Although no reason was given for Thain's resignation last week, a spokesman for Bank of America issued a statement at the time saying: "(BofA Chairman and CEO) Ken Lewis flew to New York today to talk to John Thain. And it was mutually agreed that his situation was not working out and he would resign." BofA also said that it had been aware of the bonuses prior to the merger and that, at the time, Merrill was a private company. Prior to the merger, BofA had already received $25 billion in federal funds.
"Merrill was an independent company until Jan. 1 of 2009," said spokesman Scott Silvestri. "John Thain decided to pay year-end incentives in December, as opposed to their normal date in January. Bank of America was informed of his decision."
Now Cuomo wants to know not only what BofA knew but how much it disclosed to its investors about Merrill's bonuses and its overall financial condition since BofA had asked for $20 billion in federal funds to close the deal.
"With that in mind, I am also pleased to announce that our ongoing inquiry into executive compensation practices at TARP funded institutions, including this matter, will be conducted cooperatively and in coordination with the TARP Special Inspector General Neil Barofsky," Cuomo said.
In a statement, Barofsky said, "Oversight of the executive compensation restrictions imposed on TARP recipients is a vital component of ensuring that tax dollars are not squandered by corporate executives seeking to profit illicitly from the Government's unprecedented and historic bailout of the financial industry."
Bonuses aside, Thain became another symbol of corporate greed in the midst of a tanking economy when it was also disclosed that he had spent more than $1.2 million to redecorate his office, even as his firm struggled for its life.
Thain used the same celebrity decorator, Michael Smith, that the Obama family has retained to decorate the White House. According to Charlie Gasparino, CNBC's on air editor, who broke the story, the money Thain spent in part went for two area rugs ($131,000), two guest chairs ($87,000), a 19th Century credenza ($68,000), four pairs of curtains ($28,000), and a mahogany pedestal table ($25,000).
Also reported to be on the list was a trash can for $1,400.
Thain's lavish spending shows that even as the gilded age of Wall St. comes to an end, he "occupied this rarified strata on Wall Street" and "just didn't get it," said banking industry analyst Nancy Bush. "It's time for all this to be gone because the reality needs to set in on Wall St. that the business has changed for the foreseeable future, if not forever," Bush added.