The Wall Street Journal story today reveals that the Bank of America's CEO claims he was told by Bernanke and Paulson to remain silent about the disaster unfolding after it agreed to acquire Merrill Lynch & Co.
The story is based on testimony under oath made by the Bank's CEO Kenneth Lewis before New York's Attorney General in February and shown to the Journal.
If true, this constitutes a breach of the fundamentals of securities laws which require "material facts" to be fully disclosed in a timely manner to regulators and to public stock markets.
Instead, Bernanke and Paulson told Lewis not to disclose the dire consequences unfolding at Merrill within his bank which meant that millions of shares of the Bank of America and other stocks worth tens of billions traded for prices they would not have fetched if these U.S. government officials had not allegedly imposed a cover-up.
Martha Stewart went to jail for months for withholding information from regulators about trading $50,000 worth of shares.
In this case, the two most powerful regulators in the history of the world financially damaged markets, widows and orphans, pension funds, mutual funds and other investors by not telling them a bank, and indirectly the financial system as whole, was in worse shape than previously disclosed.
The argument in favor of such a breach? It was in the national interest to do so and that by disclosing what a basketcase Merrill Lynch was, Bank of America shareholders could have stopped the acquisition and the fallout would have been catastrophic.
Instead, the deal went ahead and the Bank of America stock cratered and it had to be bailed out by taxpayers and Merrill's brass got multi-million dollar bonuses.
There were other choices such as shutting down the stock pending further developments or stock markets themselves for a cooling off period until information could be properly disseminated. There are plenty of precedents for this in extraordinary circumstances. Even a heart attack or assassination can bring about a shutdown.
But not this fall. Rather than face the music and take decisive action, Bernanke and Paulson ordered a CEO to disobey the law of the land. This makes them accessories, not leaders.
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