A New York State Supreme Court Judge has ordered former Merrill Lynch CEO John Thain to return to the office of state Attorney General Andrew Cuomo and this time comply with the terms of a subpoena by answering questions concerning how much bonus money was paid to his top 200 employees just before the firm was sold to Bank of America, officials said.
Thain was deposed by Cuomo's office Thursday in a combative all day deposition where he refused to disclose the details of how $3.6 billion in 11th hour bonuses was divided among Merrill employees, officials said.
As a result of what the Attorney General viewed as Thain's non-compliance, Cuomo's office filed a petition Monday asking the court to compel Thain to comply with the subpoena issued on January 27th.
Late Monday afternoon, Acting State Supreme Court Judge Bernard J. Fried ruled that Thain must comply. As a result Thain could be back in the hot seat as early as tomorrow, officials said.
According to Thain's attorney, Andrew Levander, that is not a problem. Thain, he said, has always been willing to reveal the specific details about the size of bonuses paid to specific Merrill employees.
"This is not Mr. Thain's battle," Levander said. "He's the man in the middle."
Thain had declined to answer the questions concerning compensation based on the guidance of Bank of America's counsel, according to Levander who said the bank felt that disclosing the specifics of individual compensation would put BofA at a competitive disadvantage -- since other banks would then be privy to their pay practices.
"John cooperated fully," said Jesse Derris, his spokesperson from the PR firm Sunshine Sachs Associates.
"At Bank of America's directive he did not answer a handful of questions, which Bank of America claimed were confidential and would thwart their competitive advantage," Levander said. "We've always been willing to answer the questions," he said. "We've never been reluctant to answer those questions."
He characterized the court proceeding as one in which "we consented to reappearing to finish the deposition," he said. "Judge Fried said 'fine, I am going to let the deposition go forward'."
The ruling is expected to force Thain to reveal specific details about the size of bonuses paid to specific Merrill employees. Cuomo's office is especially concerned about the amounts paid to the top 200 employees. The top 14 got $250 million and the top 159 received over $858 million in bonuses.
Thain was instrumental in accelerating the bonus schedule so that it took place in early December, prior to the merger, and not after the close of the calendar year, which was Merrill's past practice, officials said.
"The bonus process was accelerated to ensure that bonuses were paid before Merrill Lynch merged with Bank of America," the motion states. The bonuses fueled public outrage and officials say they appear to have been scheduled to escape public scrutiny.
Monday's motion, filed in state Supreme Court in Manhattan, charged that Thain failed to comply with the subpoena under which he was deposed last Thursday.
"In particular, during subpoenaed testimony Mr. Thain refused to answer questions about the determination and amount of individual bonus awards," the motion states.
Thain's repeated refusals to comply shocked Cuomo's top lawyer on the bonus probe, Benjamin Lawsky.
"I've never heard of a witness refusing to answer because an employer who fired him is directing him not to answer for non-privileged reasons," Lawsky said, after Thain and his attorney rebuffed at least four requests for the names.
A partial transcript of Thain's testimony made available by the Attorney General also reveals that, according to Thain, he and a key Bank of America official from the bank's human resources department, Andrea Smith, sat down prior to the merger to review the compensation packages together and make sure that both parties agreed on the size of the packages.
"Did Andrea Smith focus in on any particular people, do you recall, whose numbers she thought were too big?" Cuomo's lead attorney on the probe, Benjamin Lawsky asked.
"She did..." Thain answered.
"Or too small?" Lawsky said.
"I don't recall any of them being too small," Thain replied.
According to published reports and confirmations by the New York Attorney General's office, about 700 Merrill Lynch employees received bonuses in excess of a million dollars in 2008. The bank's four top executives received $121 million.
For a time, officials at BofA claimed they did not know about the bonus packages, and suggested they had no reason to as Merrill was an independent firm at the time. The bank has since acknowledged it was aware of the bonuses.
At the time Merrill awarded them, in December 2008, Thain knew it had lost $15 billion in the fourth quarter -- $7 billion more than expected when the performance bonus packages were drawn up, and yet he made no move to alter them, Cuomo's office alleges.
"For what performance? It's called performance bonus. It's an oxymoron," Cuomo told reporters after a speech to a New York fiscal policy group on on February 11th. "It's repugnant, it's obnoxious and it's wrong."
BofA did not return calls nor emails seeking comment.
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 attorney said he has agreed to reimburse the company for those charges.
"He agreed to pay back the cost of the furniture a month ago," Derris said. "We have requested in writing the cost of the furniture and will pay it back," Levander added.
Thain, who earned his MBA at Harvard, was named Chairman and CEO of Merrill in November 2007. The following January, the firm announced record-breaking losses of over $8 billion. By April the troubled investment bank had said it would lay off as much as 10 percent of its workforce.
This post has been updated.