WASHINGTON — Bank of America chief executive Ken Lewis has come under increasing scrutiny on Capitol Hill, and discussions have begun on hearings that could force Lewis to detail the government-brokered deal last year that married BofA shareholders to troubled Merrill Lynch.
The deal was meant to keep the nation's financial industry from continuing its downward spiral, but recent testimony has raised questions from Congress about whether top federal officials pressured Lewis to keep quiet about Merrill Lynch's widening losses — and whether Lewis was wrong to keep his mouth shut.
As the leader of the country's largest retail bank at the center of the financial crisis, Lewis has been through the hot lights of congressional hearings repeatedly and emerged relatively unscathed. Shareholders stripped him of his board chairmanship last month, however, and renewed scrutiny of the company and Lewis' leadership could make Bank of America's directors squirm.
"It's probably not a good time to be Ken Lewis," said James Cox, a corporate and securities law professor at Duke University. "I think it means he's going to spend a lot of time with lawyers and he's at pretty serious risk on a couple of fronts."
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Senate Banking Committee Chairman Christopher Dodd, D-Conn., and his staff have begun working with the staff of ranking Republican Sen. Richard Shelby of Alabama to investigate the deal that closed on New Year's Day. An aide to Dodd said the senator is considering calling a hearing.
On the House of Representatives side, a subcommittee continues weeks of behind-the-scenes investigation into the Merrill Lynch deal. The panel is part of the House Committee on Oversight and Government Reform, which also plans to hold a hearing.
It's almost certain that Lewis will be called to testify.
The Securities and Exchange Commission is looking into whether Lewis and others should have clued in stockholders and the SEC about Merrill Lynch's downhill spiral in the time surrounding the December vote to take over the investment company.
"We need to find out what's the truth," Shelby said in a recent interview with CNBC. "Somebody either has got different versions of what the events were or somebody's not telling the truth, but this could border perhaps on securities fraud."
Bert Ely, a banking consultant in Virginia, said congressional hearings could raise serious questions — including whether Lewis was party to a potential SEC violation.
However, he added, lawmakers also might be working to gain publicity from events that already have occurred. Much of the fallout, he said, will take place in shareholder lawsuits.
"The question is, to what extent is this all a circus?" Ely asked. "There are some very serious issues here. I just wonder how they're going to be plumbed."
Ely said he worried whether Congress' attention would hurt Bank of America at the same time that another branch of government was trying to strengthen financial companies with new capital.
"I'm afraid some of this stuff may make it more difficult for us to put out the fire," Ely said. "What . . . these committees are doing is throwing gas on the fire."
Lewis testified in an investigation by New York Attorney General Andrew Cuomo that he felt pressured by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to move on the Merrill deal despite his doubts — or else be booted out.
Cuomo made the testimony public three weeks ago, inspiring a flurry of reaction on Capitol Hill.
In a statement through his spokeswoman, Paulson said he was trying to deliver a message but didn't exert pressure over whether to disclose information about Merrill Lynch's losses. Bernanke also has said he didn't pressure Lewis or Bank of America about disclosure.
In late April, SEC Chairwoman Mary Schapiro told the Society of American Business Editors and Writers that the Fed and the Treasury Department should have kept her agency informed when concerns emerged about the deal.
In North Carolina — Bank of American is based in Charlotte — Attorney General Roy Cooper also has asked questions about the deal.
Cox, the Duke professor, said Lewis could face inquiries about whether he broke either state law by not managing the situation in shareholders' interest or federal law by not making a disclosure to shareholders.
"If that's (Lewis') own story . . . he was clearly not looking out for shareholders' interest," Cox said. "Shareholders' interest would be to make disclosure and try to go after more government assistance."
Ohio Democratic Rep. Dennis Kucinich's Subcommittee on Domestic Policy Oversight has sent letters to the SEC, the Federal Reserve, the Treasury and Bank of America demanding internal documents about the Merrill deal.
Rep. Spencer Bachus of Alabama, the top Republican on the Financial Services Committee, has asked for hearings by that panel. Democratic Rep. Barney Frank of Massachusetts, the committee's chairman, so far has declined.
In the Senate, Shelby brought up the matter during a recent Banking Committee meeting.
"No one's above the law," Shelby told Dodd. "If they told Ken Lewis — threatened him, basically — not to divulge to stockholders a material change in the acquisition of Merrill Lynch, I mean, something's wrong. . . . I hope, Mr. Chairman, you will hold a hearing, because if we don't, we're not doing our duties."
Not everyone is interested in bringing Lewis before lawmakers again.
Rep. Mel Watt, a Democrat on the Financial Services Committee who represents the Charlotte area, said there was little that Congress could do about Lewis, especially since Cuomo already had an investigation in New York.
"What's the point of me being out there raising hell about my concerns?" Watt asked. "Ultimately, Ken Lewis doesn't answer to Congress. He answers to his shareholders. He answers to his board."
(Kevin G. Hall contributed to this article.)
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