Bank of America CEO Ken Lewis was reelected as a director of BoA, along with all the other incumbents, but was ousted from his position as chairman of the board when the company narrowly lost a shareholder bylaw proposal mandating a non-executive chairman.
We've also just learned that Lewis withheld key information from BoA shareholders:
He’s drawn fire from investors including the California Public Employees Retirement System for agreeing to buy Merrill Lynch last year and failing to tell shareholders before they approved the deal in December that the brokerage’s losses were soaring.
Shareholders weren’t informed because aborting the takeover might have destabilized the financial system and damaged Bank of America, a scenario the board “took very seriously,” Lewis said in a speech at the meeting. The decision to remain silent was “not about selfish desire” to keep management and the board in place, he said. Disclosing talks with the government on how to resolve the matter might have created the “very crisis” they wanted to prevent, he said. ...
New York Attorney General Andrew Cuomo revealed this month that Lewis had testified then-Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors in December if the lender tried to back out of buying Merrill.
Lewis balked at completing the deal as the quarterly loss soared toward $15.8 billion, only to have U.S. officials tell him to proceed, according to testimony released by Cuomo. Regulators also instructed Lewis not to disclose Merrill’s losses, his desire to back out of the takeover or the intervention of regulators, according to Cuomo.
This raises some fascinating securities fraud issues. Do Lewis and BoA have a "Nuremberg Defense" for following government orders? Do the officials who gave the orders have liability?
One thing is clear: The withholding of this information was demonstrably inconsistent with well-established securities law policies. As the Supreme Court explained in Basic, Inc. v. Levinson, 485 U.S. 224(1988):
Disclosure, and not paternalistic withholding of accurate information, is the policy chosen and expressed by Congress. We have recognized time and again, a “fundamental purpose” of the various Securities Acts, “was to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.” SEC v. Capital Gains Research Bureau, Inc., [375 U.S. 180, 186 (1963)].
If nothing else, this episode should stand as a clear warning of the ills that can arise when government meddles in private business. Indeed, as GM and Chrysler's creditors are finding out, lack of respect for investor rights is now a bipartisan sport.