Despite denials, Feds knew of Merrill bonuses

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Court documents show that federal regulators were told about billions of dollars in bonuses awarded to Merrill Lynch executives during the company’s takeover by Bank of America - contradicting statements to Congress by Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry M. Paulson Jr.

The Securities Exchange Commission (SEC), in a brief filed in ongoing litigation with Bank of America Corp., said the bank informed the Treasury Department and the Federal Reserve of the Merrill Lynch bonuses as early as Dec. 17 - weeks before the government approved a $20 billion bailout to help the takeover.

The document disputes oral and written testimony to Congress from Mr. Bernanke and Mr. Paulson, who both said they knew nothing about the $3.6 billion in bonuses before the bailout was approved in January.

Mr. Paulson, while under oath during a House Oversight and Government Reform Committee hearing July 16, was asked directly by Rep. Elijah E. Cummings, Maryland Democrat, whether he was “aware of the Merrill Lynch 3-plus billion dollars’ worth of bonuses they were about to give out when this deal came down.” His response: “No, I wasn’t.”

Mr. Bernanke, in a letter to the committee earlier this year, also suggested that the Federal Reserve didn’t know about the bonuses before the bailout.

“Beginning on December 17, 2008, we participated in several discussions with management of Bank of America about its plans to acquire Merrill Lynch,” Mr. Bernanke wrote. “The discussion did not encompass compensation levels or bonuses of Merrill Lynch employees.”

The committee’s top Republican, Rep. Darrell Issa of California, is demanding an explanation from Mr. Bernanke and Mr. Paulson.

“It is now apparent that you knew, or at least should have known, about the bonus payments to Merrill Lynch employees no later than December 18, 2008,” Mr. Issa said in letters sent last week to Mr. Paulson and Mr. Bernanke.

“We now know that [Bank of America] certainly wasn’t hiding the information from the federal government. If you felt that the bonuses were unfair or problematic, you could have at the very least raised additional questions or formally objected before [the government] gave the company an additional $20 billion of taxpayer money.”

Mr. Issa, however, stopped short of accusing Mr. Paulson and Mr. Bernanke of lying.

“We still do not know the full truth,” he said. “The American people have the right to know when you became aware of the bonus payments to Merrill Lynch employees and whether you approved or objected to these payments.”

The lawmaker has asked Mr. Paulson and Mr. Bernanke to clarify their statements by Oct. 21.

Treasury spokesman Andrew Williams said he “can’t comment on any decisions Paulson made” because the former secretary no longer is with the agency.

A Federal Reserve spokesman said the agency has received Mr. Issa’s letter and “will be responding,” but declined further comment.

The Merrill Lynch bonuses have been a significant part of several congressional inquiries into whether Federal Reserve and Treasury officials put undue pressure on Bank of America to complete its planned purchase of Merrill Lynch. The bank, which had concerns about Merrill Lynch’s mounting loses, eventually closed the deal in January. Shortly after the purchase, the federal government awarded Bank of America $20 billion in bailout money to help counter losses racked up by Merrill Lynch.

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