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Ken, Ben, Hank And A Stick of Dynamite

Bank of America CEO Kenneth Lewis told New York State regulators in February that he was ordered by Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson not to discuss the deep problems emerging in its deal to acquire Merrill Lynch.

According to documents obtained by CBS News, Lewis told investigators Paulson and Bernanke threatened to have the Bank of America CEO and fellow management removed if they did not move forward with the troubled acquisition at the height of the financial crisis. Lewis was beginning to have second thoughts about the risk Merrill Lynch's balance sheet might pose to Bank of America.

New York Attorney General Andrew Cuomo's April 23 letter to Sen. Chris Dodd, Rep. Barney Frank, SEC chairman Mary Schapiro and others describing the pressure that Fed chairman Ben Bernanke and then-Treasury Secretary Henry Paulson put on Bank of America CEO Ken Lewis to go through with the acquisition of Merrill-Lynch.
Under questioning by New York State attorney Benjamin Lawsky, Lewis said:

Lewis: "The situation was that everyone felt like the deal needed to be completed and to be able to say that, or that they would impose a big risk to the financial system if it would not."

Ben Lawsky: "When you say "everyone", what do you mean?"

Lewis: "The people that I was talking to, Bernanke and Paulson.

Lawsky: "Had it been up to you would you made the disclosure?"

Lewis: "It wasn't up to me."

If Lewis' explanation is true, a Federal Reserve Chairman and a United States Treasury Secretary seems to have threatened a bank CEO to keep information secret from his shareholders.

New York investigators tell CBS News that Paulson has corroborated Lewis' account. The Federal Reserve has refused to hand over certain documents related to the Bank of America/Merrill Lynch deal.

"You had a bailout deal and forced merger that was done in the dark of night." according to a source involved in the investigation. "This is a stick of dynamite."

"Lewis admits that his decision to go through with the deal was not in the best interest of certain shareholders. The public should care because it showed a lack of transparency and disclosure for what the banks are doing and how the TARP is run. Lewis should have been making decisions that are best for his shareholders. No disclosure raises fundamental questions about what Paulson and Bernanke did was best for the country. Is that how government is supposed to operate?"

A number of Bank of America shareholders have filed class action lawsuits in the wake of the Merrill Lynch deal. The revelation also raises new doubts about Lewis' ability to hold onto his job. Bank of America is holding a shareholder meeting in Charlotte next week. Bank of America investors have seen the bank's stock price drop by nearly 50% in the months following the Merrill Lynch deal.

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