Feds Knew About Merrill Lynch Bonuses Says Court Documents in Bank of America (NYSE:BAC) Case

It doesn’t come as a surprise that court documents in the Bank of America (NYSE:BAC) case alleging the institution withheld information from the government about bonuses awarded to executives at Merrill Lynch before they took them over, state in fact that Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson were made aware of the bonuses weeks before the deal closed, contradicting statements the two made before Congress.

Now we know why the Securities Exchange Commission (SEC) wasn’t vigorously pursuing litigation against the executives at the company, knowing they were given the go ahead by Bernanke and Paulson. According to the SEC, they said in a bried filed with the court that the Federal Reserve and Treasury Department were told about the bonuses at Merrill Lynch as early as December 17.

With all this in mind, it wouldn’t be a stretch to assume there was pressure on the SEC to back off of vigorous legal pursuit of executives at Bank of America because they evidently were told it was okay to go ahead with the deal, something they were actually reluctant to do at the time and were resisting until continual Fed pressure ended with them taking over the failing bank.

It seems this is part of what the judge smelled when he rejected the $33 million settlement between Bank of America and the SEC concerning the alleged lack of disclosure of the bonuses at Merrill Lynch. He knew much of what was being said didn’t make sense, especially when the SEC made the $33 million settlement agreement but then said they had no proof individual executives at Bank of America behaved wrongly. It was there I think the judge decided to not accept the settlement and let a trial bring out what really happened, which it now is.

This is another blow to Bernanke and Paulson, both of which denied knowing about the Merrill bonuses, with Paulson saying it under oath. Bernanke might have a weasel clause out of this, as in a letter sent to the House Oversight and Government Reform Committee hearing on July 16, 2009, he stated concerning discussions with Bank of America, which began on December 17, 2008, that they ” … did not encompass compensation levels or bonuses of Merrill Lynch employees.”

What Bernanke doesn’t say in the letter is whether he knew about the Merrill bonuses or not, he simply states that within the parameters of their official discussions it wasn’t brought up. Even that may not be true, but if it is, all it means is he could have had conversations with Bank of America executives during a break and been told it. Again, something doesn’t sound right in all this concerning Bernanke and Paulson, and it’s worse if they knew all this and allowed it to go forward.

This is the problem with the “too big to fail” mentality. They seemingly were so much in a panic that they threw all caution to the wind and forged ahead no matter what the cost. Now it looks like they not only knew about the Merrill bonuses, but improperly pressured executives at the Bank of America to go ahead with the deal in spite of it, when they were leaning toward dropping the takeover altogether. This is extraordinary, but not surprising.

Republican, Rep. Darrell Issa of California, said, “We still do not know the full truth. 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.”

Issa said he wants Bernanke and Paulson to clarify the contradiction between their statements and the brief filed by the SEC by October, 21.