Bank of America has entered into a proposed settlement with the U.S. Securities and Exchange Commission to resolve all cases filed by the SEC related to the Merrill Lynch merger, but it still faces a lawsuit from the New York state attorney general, Andrew Cuomo, over the deal.

The firm said Thursday has entered a proposed settlement with the SEC, that will be submitted for court approval, to resolve all issues uncovered by the SEC regarding the bank’s acquisition of Merrill Lynch. The firm has also entered into an agreement with the Office of the Attorney General for the State of North Carolina.

However, New York’s AG announced a lawsuit against Bank of America, its former CEO, Kenneth Lewis, and its former CFO, Joseph Price, alleging that management “intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger. Once the deal was approved, Bank of America’s management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds.

“This merger is a classic example of how the actions of our nation’s largest financial institutions led to the near-collapse of our financial system,” said Cuomo. “Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large. This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules. In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds.”

The lawsuit filed today in New York State Supreme Court seeks monetary relief and injunctions from Bank of America, Lewis, and Price.

The bank’s former CEO, Ken Lewis’ attorney issued a statement regarding the lawsuit, pledging to fight the charges. “The decision by Mr. Cuomo to sue Bank of America, Mr. Lewis and other executives in connection with BofA’s acquisition of Merrill Lynch is a badly misguided decision without support in the facts or the law. As the SEC correctly concluded recently based on the very same evidence, there simply is no basis for any case against Mr. Lewis or any other individual,” said his lawyer, Mary Jo White of Debevoise & Plimpton LLP.

“There is not a shred of objective evidence to support the allegations by the attorney general. Mr. Lewis and other BofA employees acted in good faith in the Merrill Lynch transaction, following the expert legal advice of counsel and in the best interests of BofA shareholders. The Merrill Lynch transaction – undertaken at a time of significant danger to our financial system – has also proven to be an unmitigated success for BofA shareholders. Mr. Lewis has been unfairly vilified by the political search for accountability for the financial meltdown. This suit is not fair, it is without factual or legal basis, and we look forward to prevailing in a court where the facts and law do matter,” she added. Counsel for the former CFO issued a similar statement too.

Under the terms of the settlements with the SEC and North Carolina, Bank of America agreed to pay $1 in disgorgement and an additional $150 million as a civil penalty to be distributed to shareholders. A payment of $1 million will also be made to the NC AG for its consumer protection purposes.

In addition, as part of the settlements, Bank of America agreed to: engage an independent auditor to perform an assessment of the effectiveness of the company’s disclosure controls and procedures; management certifications of proxy statements; retain disclosure counsel to the audit committee; adopt independence requirements beyond those already applicable for all members of the compensation committee; continue to retain an independent compensation consultant; implement and disclose written incentive compensation principles; provide the company’s shareholders with an annual “say on pay” advisory vote regarding the compensation of executives. Bank of America has agreed to comply with these requirements for three years.

Bank of America said, “After conducting a full investigation in connection with the actions settled today, the SEC staff has determined that no one acted with any intent to mislead and that charges against individuals for their roles in connection with proxy disclosure are not appropriate.”

@page_break@Commenting on the SEC’s proposed settlement, Cuomo stated, “I support the SEC’s proposed settlement of its pending actions against Bank of America. The corporate governance provisions of that settlement are important reforms for Bank of America and ensure that safeguards against future violation of the law will be implemented immediately and will not have to await the conclusion of the case we are filing today.”

IE