The Cuomo investigation.

New York AG Andrew Cuomo’s investigation of bonuses paid to Merrill Lynch executives continues.  The latest round centers on the testimony of former Merrill President turned Yale Law School Professor Gregory Flemming.  Flemming testified that BofA threatened to sue him if he disclosed any information regarding the Merrill bonuses.  Today, Cuomo and Congressman Barney Frank sent a letter directly to BofA CEO Ken Lewis requesting bonus information.

BofA lawyers are likely trying to avoid disclosure of any such testimony in light of the numerous class action lawsuits challenging the BofA/Merrill merger.   They have asked the New York Court handling the Cuomo investigation to expand the gag order in place to Flemming’s testimony. 

Is there a scenario where the Merrill execs would have to pay their bonuses back?  Yes.

Disgorgement of salaries is difficult, but bonuses are another matter.  Specifically, Section 304 of the Sarbanes Oxley Act permits claw back of excess compensation.  Cuomo has previously used New York’s fraudulent conveyance laws to attack improper compensation.  Kevin LaCroix provides an excellent analysis of various claw back/disgorgement theories in The D&O Diary. It would appear that Cuomo’s ultimate endgame is to claw back the bonuses.  Time will tell if he is successful, but his efforts will continue to receive media attention as the economy sputters. 

BofA non-compete lawsuit.

Merrill/BofA cannot stay out of the news.  Last week, BofA filed suit in New York State againt Deutsche Bank for taking 12 senior bankers.  The suit also names former Merrill Treasurer Eric Heaton as a Defendant asserting he is violating a non-compete agreement that is in place until 2010.   It would appear that BofA wants Merrill employees to think twice about jumping ship when they have a non-compete in place.