BankAm chairman-CEO Kenneth Lewis subpoenaed by NY Attorney General

Bank of America Chairman and CEO Kenneth Lewis was issued a subpoena by New York State Attorney General Andrew Cuomo, who is investigating whether the bank withheld information from investors in violation of state law. Bank of America chief administrative officer J Steele Alphin and Andrea Smith also were subpoenaed. Smith was involved in setting compensation of several top Merrill executives.

Lewis, who received the subpoena late last week, is the highest-profile subject of Cuomo's investigation into the bank's purchase of Merrill Lynch & Co. on 1 January. Cuomo's office is trying to determine if investors were misled about the depth of Merrill's losses in late 2008 and whether details of the bonuses to Merrill employees, contained in a nonpublic document, should have been disclosed to investors. (See: Merrill docked for wrongly enriching executives)

Barely two weeks after the closing, Bank of America revealed that Merrill lost $15.31 billion in the fourth quarter, and got an emergency federal bailout including $20 billion of new capital and a loss-sharing agreement on $118 billion of troubled assets. Since Thain's resignation, there have been conflicting reports about how much Bank of America executives knew about Merrill's problems, including the bonus awards, before they were publicly revealed.

Investigators took testimony all day yesterday from former Merrill CEO John Thain, who was asked about $4 billion in bonuses paid to Merrill employees, and in particular why Bank of America's merger agreement with Merrill contained a non-public attachment outlining the maximum Merrill could pay.

The US Securities and Exchange Commission (SEC) typically investigate many of these issues. But as the chief regulator in Wall Street's home state, Cuomo has wide powers to look at wrongdoing in the securities industry. Cuomo's investigators are probing, among other things, whether trading losses were adequately disclosed to shareholders and boards of both companies, and what top executives approving the bonuses knew about the losses.

Bank of America shares closed down 14 per cent at $3.93 on Thursday on fears that losses from Merrill, credit cards, recently acquired mortgage lender Countrywide Financial Corp and other areas could lead to government control, wiping out shareholders.

Lewis addressed the nationalization speculation during a senior leadership meeting Thursday at the bank's headquarters, according to a person there. Policy officials in Washington have assured Lewis that such an option isn't on the table, the CEO said. He also said he has urged the government to say this publicly.