March 18, 2009— -- Bank of America will have to reveal the names of the executives at Merrill Lynch who received last minute bonuses on the eve of the merger of the two companies at the end of last year.
Attorney General of New York Andrew Cuomo took Bank of America to court to force them to reveal the information, after the bank said it was proprietary. But Wednesday New York State Supreme Court Judge Bernard Fried denied Bank of America's motion to keep the names secret saying the Attorney General of New York has the "authority to decide whether the information he gathers as part of his investigation should be kept secret or public."
Wednesday's decision could set a precedent on the issue of revealing bonus details to the public. Cuomo has also subpoenaed AIG to reveal the names and amounts of the controversial bonuses issued late last week to members of their Financial Products division, blamed for the insurance company's disastrous losses in 2008.
"Today's decision in the Bank of America case is a victory for taxpayers. Let the sun shine in. Justice Fried's decision will now lift the shroud of secrecy surrounding the $3.6 billion in premature bonuses Merrill Lynch rushed out in early December," said Cuomo following the decision.
"Bank of America chose litigation over transparency and we are gratified that this tactic has failed. AIG should take heed and immediately turn over the list of bonus recipients we have subpoenaed. The deadline for responding to our subpoena is tomorrow. More litigation is not the answer - it is time for AIG to come clean," he warned.
The judge rejected Bank of America's argument that its compensation information was a trade secret, akin to the secret formula of Carvel ice cream. Fried wrote "the evidence does not show that Bank of America requires its employees to keep their compensation confidential." Further, Fried decided "there is no legal basis for the proposed petitions to quash, fix conditions or modify subpoena and for a protective order."
A spokesperson for Bank of America said the company will comply with the judge's order. "We will of course comply with the order of the court and turn over the information requested. We will continue to cooperate with the AG's investigation."
Cuomo vs. Bank of America
In court last week, Bank of America compared itself to the maker of Fudgy the Whale. It said the list of the top 200 Merrill Lynch employees awarded bonuses in late 2008 was like the formula for Carvel Ice Cream: a trade secret.
"We want the names kept private," said Evan Davis, an attorney with Cleary Gottlieb Steen & Hamilton LLP representing Bank of America.
"If those names are published it will cause us harm," Davis said adding "our competitors want this information."
A lawyer in the New York Attorney General's office, Eric Corngold, argued bonus payments are no trade secret.
"Salary information is not a trade secret," Corngold told the judge. "It's not like a formula for ice cream."
Corngold said the Office of the Attorney General is conducting a "broad investigation" to try and "get to the bottom of a set of very complicated issues."
Cuomo has been investigating $3.6 billion in bonuses Merrill Lynch paid to employees just before it was acquired by Bank of America and reported a loss of nearly $16 billion. The acquisition was financed, in part, with taxpayer dollars.
"We can't have the subjects of an investigation telling the attorney general who he can subpoena," Corngold said.
Ongoing Wrangle Over Bonuses
The ongoing wrangle over the disclosure of bonus information is the hot button issue as investigators probe if Merrill Lynch or Bank of America, or either firm's employees, violated securities laws when bonuses were doled out.
Merrill's bonuses were historically paid following the close of the calendar year, but the 2008 bonuses were paid in December, just weeks before the merger was finalized, and in a year the firm lost almost $28 billion.
Despite the poor performance of the firm, 696 Merrill employees received bonuses of more than $1 million. Four top employees were given bonuses totaling $121 million.
Cuomo's office is seeking to determine if any laws were violated in the way bonuses were paid on an accelerated schedule by a team that included former Merrill CEO John Thain and Bank of America officials.
Thain had to be served two subpoenas before he answered any questions on the bonuses. During his first deposition, he cited direction from Bank of America as the reason he would not answer. A judge ordered him to testify and said the information would remain confidential until Wednesday's ruling.
Earlier this month, Thain testified before Cuomo's investigators and told him what he knew about bonus recipients and the amounts they netted. But Cuomo's probers want to complete that list – and get as much information as they can on at least the top 200 earners at the firm.