N.Y. AG subpoenas Thain over Merrill Lynch bonuses

— -- Thain lost his job last week after it was revealed that Merrill gave bonuses to its employees in December, days before its merger with Bank of America closed. Usually, Merrill pays bonuses in January.

"The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling," says Cuomo, who's working with special inspector general Neil Barofsky in the investigation.

It also appalled lawmakers who have criticized the ways banks have used bailout money. Taxpayers poured as much as $45 billion into the Bank of America-Merrill Lynch deal.

"Thain's decision to hand out bonuses is outrageous — his insensitivity disappoints me," says Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who recently introduced a bill to mandate accountability and transparency and set limits on compensation at banks that receive money from the government's Troubled Asset Relief Program.

Merrill Lynch agreed to be acquired by Bank of America in September. But Merrill's financial condition deteriorated dramatically in the fourth quarter, resulting in a $15.3 billion loss. That was so large and unexpected that it pushed BofA to ask the government for an additional $20 billion to complete the merger — on top of the $25 billion that Merrill and BofA had jointly already received.

"To pay out cash when you know the firm is going to lose billions of dollars is shocking. How could the board approve such a decision?" asks Charles Elson, director of the Weinberg Center for corporate governance at the University of Delaware.

Even though Merrill Lynch reported losses in every quarter of 2008 totaling $27 billion, its latest earnings release shows that its compensation and benefits cost for 2008 totaled $15 billion, almost flat from $15.9 billion in the previous year.