Is Bank of America, the nation’s largest bank, tracking how it spends $45 billion in taxpayer funds?
That depends on which Bank of America statement you believe.
The bank told the Treasury Department in May that it couldn’t follow the money it received through the government’s $700 billion bailout program because those funds “are part of our operating capital” and “cannot effectively be segregated.”
Bank of America chief executive Ken Lewis made a similar statement in February to Congress. “As a practical matter, we cannot tell you whether the next loan we make is funded by that $45 billion,” Lewis said in his written testimony to the House Financial Services Committee.
But two weeks ago, inside a federal courthouse in Manhattan, the bank had a different story. According to news accounts of the hearing, the bank’s lawyers promised Judge Jed S. Rakoff that the financial giant would not use taxpayer dollars to make a $33 million payment to the U.S. Securities and Exchange Commission. The commission charged that Bank of America had misled investors about billions of dollars in bonuses paid to Merrill Lynch executives when the bank acquired Merrill in January.
The Bank’s promise to the judge leads Rep. Alan Grayson (D-Fla.), a member of the House Financial Services Committee, to ask: How can the bank guarantee that it won’t pay the SEC from public funds if it can’t track how it spends those funds?
“The only question is are they lying now or were they lying then,” Grayson said today in an interview with the Investigative Fund. “I’m disgusted that they would so greatly contradict themselves.”
Grayson said the “simplest way” to find out the truth would be to require Bank of America executives to testify under oath before Congress.
Judge Rakoff also could demand a straight answer. In general, if a lawyer makes a “knowing material misrepresentation” to a judge, the lawyer could be held in contempt of court and be sanctioned by state bar authorities or the judge, according to William Sullivan, who was an assistant U.S. Attorney for the District of Columbia for more than 10 years.
Even lawyers who make an honest mistake are “obliged to correct the record,” said Sullivan, now a corporate defense attorney at Winston & Strawn. “You have an obligation as an officer of the court to make truthful statements to the best of your ability.”
In an interview, bank spokesman Scott Silvestri acknowledged telling reporters after the hearing in New York that taxpayer money would not be used to pay the settlement. He declined to explain how his statement—and the lawyers’ statements to the judge—could be reconciled with the bank’s earlier claims that the money can’t be tracked.
As for that $45 billion in public funds, the bank intends to repay the money “as soon as possible,” Silvestri said, adding that the funds would eventually be a “good investment” for taxpayers. Silvestri said that the bank has lent $13 for every one dollar it has received from taxpayers, an amount totaling $585 billion. (A breakdown of that lending can be found here.)
Because they are among the largest recipients of bailout money, the Treasury Department requires only Bank of America and Citigroup to produce quarterly accounts of their use of these funds. But answering how the funds are being used, Lewis told Congress, “is tougher than it sometimes seems.”
Citigroup, however, has not had a problem tracking its spending. This month it produced a 26-page “progress report” detailing how it has used government dollars.
“American taxpayers made a significant investment in the financial industry, and Citi believes they have a right to know exactly how their money is being put to work in the economy,” said Citi spokeswoman Molly Meiners.
Bank of America, meanwhile, submitted to Treasury a general one-page “discussion” on its use of government funds, according to a report by the Treasury Department’s special inspector general for the bailout.
Now the inspector general’s office wants more.
“When we know where the money is going, we have transparency and accountability,” said Kristine Belisle, a spokeswoman for the inspector general.
More immediately, Bank of America is struggling to resolve its dispute with the SEC over the Merrill matter. Judge Rakoff refused to approve the $33 million proposed settlement, which does not require the bank to admit wrongdoing, because he thought it was too small.
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