Merrill And Bofa Deposition Excerpts
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Exhibit C
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IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
----------------------------------------------------------
EXAMINATION of JOHN ALEXANDER THAIN, taken at the Office of the New York State Attorney General, 120 Broadway, New York, New York, on February 19, 2009 at 10:10 a.m., pursuant to a Subpoena, before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 7 J. A. Thain
1 2
billion and $25 billion.
The structures that we're
3
being talked about in terms of the potential rescue
4
of Lehman posed significant difficulties, and we
5
were aware that Lehman was talking to at least two
6
potential acquirers, Bank of America and Barclays. Mid-morning on Saturday, I became very
7 8
concerned that the combination of the potential
9
loss in the commercial mortgage portfolio, and the
10
complications of putting any type of rescue
11
together without any form of government assistance
12
made it likely that Lehman would not, in fact, be
13
rescued; that it would fail.
14
concerned about the impact a Lehman failure would
15
have on the market generally upon all the financial
16
institutions, but, in particular, on Merrill Lynch.
17
Q.
And I was very
That would be a good place just to ask
18
you to focus a little more on what occurred on
19
Saturday morning that heightened your concern then
20
that led you to think that Lehman might fail.
21
A.
It was a combination of the fact that
22
the size of the loss was of a magnitude that it was
23
going to be difficult to put together a rescue
24
package, and the structures that could possibly do
25
that were very difficult to put together with that
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Page 8 J. A. Thain
1 2
group.
If you go back to long-term capital -- and
3
I was part of the group that put that rescue
4
package together -- that was $4 billion, and that
5
was difficult enough.
6
together, whether it's $15 billion or $25 billion,
7
and making that actually happen in a relatively
8
short period of time, it was my personal assessment
9
that that was very unlikely.
The idea of putting
And the combination
10
of Tim Geithner, Hank Paulson and Chris Cox,
11
continued to maintain that the government was not
12
going to provide any form of assistance, so I felt
13
that I needed to give Merrill Lynch alternatives in
14
the event of a Lehman bankruptcy.
15
placed a phone call to Ken Lewis saying that we
16
would like to engage in a conversation about a
17
strategic transaction, and he said "Fine" -- he
18
was, I believe, at his home in Charlotte -- and he
19
said, "I can be there mid-afternoon," and we agreed
20
to meet at 2:30 on Saturday afternoon at their
21
corporate apartment in Time Warner.
22
Q.
So mid-morning I
Before we go into the conversation with
23
Mr. Lewis, could you just go through a little bit
24
on what your thinking was, at the time, about the
25
impact a Lehman failure would have on Merrill?
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1 A.
2
It's always a little bit difficult to
3
remember exactly what your thinking was on a
4
particular day because many things had transpired
5
since then, and, of course, I now know what the
6
real impact was of the Lehman failure, but my best
7
recollection of Saturday was that because of the
8
problem assets on Merrill's balance sheet and
9
because of the funding requirements on Merrill's
10
balance sheet, that the likely impact of a Lehman
11
bankruptcy would focus on Merrill next as opposed
12
to Morgan Stanley or Goldman Sachs, and that we
13
would likely have very serious funding problems
14
beginning Monday morning. Q.
15
And if you could flush that out a little
16
bit.
17
would they lead to?
18
What would the funding problems be, and what
A.
The types of funding problems come from
19
the financing of the balance sheet, in particular,
20
the financing of less liquid assets through REPO,
21
through unsecured funding, and also the financing
22
that's provided through the prime brokerage
23
businesses.
24
up our liquidity positions, the size of liquidity
25
drains that were possible, and the inability to
Although we were continually building
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Page 10 1
J. A. Thain
2
finance positions in the REPO market, and the
3
potential withdrawal of cash out of the prime
4
broker, all of which had a significant risk of
5
causing a liquidity problem at Merrill --
6
MR. CORNGOLD:
In light of what happened
7
to Lehman, why was that a premise --
8
is, if Lehman would come up with a structure
9
to preserve Lehman, wouldn't you have the
10 11
that
same problems on Monday morning? THE WITNESS:
The problems would still
12
have been there, my best guess, but to a much
13
lesser extent.
14
in my view, caused a complete shutdown in the
15
credit markets.
16
rescued, yes, we would have had funding
17
issues, and, yes, we would have had continued
18
to focus a lot on our liquidity position --
19
which we have been really over the course of
20
the entire year -- but the failure of Lehman
21
really caused a complete unwillingness of
22
financial institutions to lend money to each
23
other, to provide financing for each other,
24
and, so whatever might have happened --
25
So the bankruptcy at Lehman,
And so if Lehman had been
MR. CORNGOLD:
And you anticipated -- I
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Page 11 J. A. Thain
1 2
mean, you're now doing the what happened as
3
opposed to what you were anticipating -- you
4
anticipated that the failure of Lehman would
5
have caused a shutdown. THE WITNESS:
6
No.
I anticipated that
7
the failure of Lehman would have caused very
8
severe problems for Merrill Lynch.
9
Q.
By the way, did you have any kind of
10
task force or similar groups set up to, in fact,
11
game out the position Merrill Lynch would have been
12
in if Lehman failed?
13
A.
We were constantly focused on our own
14
liquidity position and constantly focused on the
15
difficulties in the marketplace.
16
to that weekend, specifically gamed out what would
17
happen if Lehman would have failed.
18
MR. CORNGOLD:
We had not, prior
Did you know when you
19
called Bank of America that their transaction
20
with Lehman was dead -- or was it dead at
21
that time?
22
THE WITNESS:
23
MR. CORNGOLD:
I did not know. So wasn't your call to
24
Bank of America, wouldn't that have
25
contributed to the problem that you
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1
MR. CORNGOLD:
2 3
when you called. THE WITNESS:
4 5
But you didn't know that
Q.
That's true.
I did not.
Did you have an assessment of how long
6
Merrill would have if it didn't do a quick marriage
7
with someone else in the event --
8
A.
In the event of a Lehman bankruptcy?
9
Well, you're asking me to predict what might have
10
happened -- which, of course, I can't necessarily
11
do -- but these type of liquidity problems become
12
critical within days.
13
example, Lehman's liquidity problems accelerated
14
very, very quickly.
15 16 17
Q.
And, in fact, Lehman, as an
So, at this point, finding a partner for
Merrill became a priority? A.
Correct. MR. CORNGOLD:
18
And -- I'm sorry -- that
19
was true whether Lehman was going to do a
20
transaction that preserved it or not, I take
21
it. THE WITNESS:
22 23 24 25
No.
I don't agree with
that. MR. CORNGOLD: theory thing.
It's sort of a game
You make this call on Saturday
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last were, the chronology was that you had spoken
3
with Ken Lewis and set up a 2:30 meeting at the
4
Time Warner building.
5
A.
Yes.
6
Q.
Did that occur?
7
A.
Yes.
8
Q.
Why don't you pick up the time line
9 10
there? A.
So we got together; we talked about the
11
logic of the business fit and the strategy of the
12
businesses of Bank of America and the businesses of
13
Merrill Lynch.
14
in selling a 9.9 percent stake and getting a large
15
credit facility.
16
wasn't interested in buying a minority stake, but
17
he would be interested in buying the whole company.
18
I said to him, "Well, I didn't come here to sell
19
the company," and we jointly agreed to pursue both
20
paths, a hundred percent and 9.9 percent, and we
21
set our various teams off on a due diligence and
22
structure process.
I said to him that I was interested
He said to me that he really
23
Q.
And what happened after the meeting?
24
A.
I mobilized our team and he mobilized
25
his team, and they began a process of due diligence
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and structure.
3
Saturday afternoon, Saturday evening, Sunday.
4
Q.
That continued really all through
That sort of is a very condensed due
5
diligence cycle.
6
due diligence was accomplished in those two days?
7
A.
Can you speak to that, how the
I was not party to that.
That was
8
conducted on our side by people who work for me,
9
and I can't say on Bank of America's side.
10 11
Q.
On your side, who reported to you on
that issue?
12
A.
Primarily Greg Fleming.
13
Q.
Did you have discussions with Greg
14
Fleming about how the due diligence for a deal with
15
Bank of America would be accomplished in,
16
basically, a Saturday/Sunday time frame?
17
A.
Greg Fleming is a very experienced
18
financial institution investment banker -- that's
19
where he came from.
20
conversation about the due diligence process, but I
21
was quite comfortable that he was capable of
22
conducting that.
23
Q.
I don't recall a specific
How about from the side of Bank of
24
America?
Meaning, what was your understanding of
25
what Merrill did to give Bank of America
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1 2
attention to is page 293 of the document, which is
3
towards the back.
4
"Section 5.2B."
There is a bullet point called
5
A.
Is this part of the schedule?
6
Q.
Yes. So you now have page 293 in front of
7 8
you?
9
A.
I do.
10
Q.
Did you participate in the negotiation
11
of this provision?
12
A.
I did not.
13
Q.
Were you aware of this provision?
When
14
I'm saying "this provision" I'm talking about
15
Section 5.2B on page 293 regarding the "Variable
16
Incentive Compensation Program." A.
17 18
I was aware that it was being
negotiated. Q.
19
If you could tell me what your
20
understanding was of what was being negotiated
21
here.
22
A.
My understanding of what was being
23
negotiated, was to provide for us, Merrill Lynch,
24
to be able to pay bonuses to our employees prior to
25
the deal closing, and that this provision set a cap
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on the amount that we could pay out in those
3
bonuses.
4
number, the $4.5 billion number, and it also
5
specified the mix of cash and stock that we would
6
use.
7
would be paid out prior to the deal closing, and
8
that deal closing was expected to be on or around
9
December 31.
The main operative cap is the expense
And the expectation was that these bonuses
MR. LAWSKY:
10
You said you were aware
11
that this was being negotiated.
12
know?
13
THE WITNESS:
14
primarily, Greg Fleming.
15 16 17
MR. LAWSKY:
How did you
Through discussions with,
Can you talk about those
discussions? THE WITNESS:
I was aware that they were
18
negotiating the ability to pay our employees
19
for 2008 -- I was aware that they were
20
negotiating.
21 22
MR. LAWSKY:
with Fleming about this topic in particular?
23
THE WITNESS:
24
MR. LAWSKY:
25
Do you remember the meeting
I do not. You didn't have a separate
meeting about it; it just came up as one of
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1 2
say, is that the number in the merger agreement was
3
a cap?
4
A.
Yes.
5
Q.
And you could go lower, but you couldn't
6
go higher.
7
A.
Correct.
8
Q.
And with respect -MR. LEVANDER:
9
You could always vary a
10
provision with the consent of the other side,
11
but without Bank of America's consent you
12
couldn't go over cap.
13
Q.
I don't see anything in here
14
particularly about the timing issue, but you
15
also -- is it fair to say that you also had the
16
right to have bonuses paid after December 31? Let me put that question in a slightly
17 18
different way.
19
agreement that required you to pay out bonuses by
20
December 31, 2008; is that right?
21
A.
There was nothing in the merger
My understanding of the way this works
22
-- I'm obviously not a lawyer -- is that this was
23
providing for bonus payments prior to the deal
24
closing -- whenever that might be -- and so the
25
timing of the bonus payments would be tied to the
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1 2
transactions closing, which was expected to be on
3
or about the 31st, but the 31st itself isn't the
4
operative date.
5
Q.
The last sentence of Section 5.2 says
6
"The allocation of the 2008 VICP among eligible
7
employees shall be determined by the company in
8
consultation with parent."
9
consultation one that you were familiar with prior
10
to entering into this agreement? MR. LEVANDER:
11 12
mean by that.
13
A.
14 15
Is the concept of
I'm not sure what you
I don't know how to answer that.
I
understand the meaning of the word "consultation." Q.
Had you experienced other deals where
16
you had a right to consult on an issue prior to a
17
merger?
18
A.
I don't really remember.
I have only
19
been involved in a relatively small number of
20
mergers.
21
Stock Exchange and Euronext, I don't remember if
22
there was a particular provision in which we had
23
the right of consultation or not.
24 25
Q.
In the case of the merger of the New York
What was your understanding of what Bank
of America was entitled to do pursuant to its right
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of consultation? A.
I don't think that was the way we worked
4
with them.
We were not operating under what their
5
technical rights were.
6
Our behavior with them was complete transparency.
7
They provided input to what the ultimate number
8
was; they changed the mix of cash and stock -- we
9
changed it at their request -- and they had access
They were acquiring us.
10
to name-by-name compensation figures.
11
an integral part of the process of determining both
12
what the ultimate pool size was and what
13
individuals got.
14
Compensation Committee ultimately approved the
15
bonus pool, but they had complete access to the
16
information and could provide input on it.
17
So they were
Now, technically, of course, our
MR. LEWIS:
When you say they had
18
"access," can you be more specific?
19
Andrea Smith, Steele Alphin; was it other
20
people?
21
THE WITNESS:
Was it
It was primarily Andrea
22
Smith and Steele Alphin because that was
23
their jobs, but any of the other Bank of
24
America people, if they asked for
25
information, would get it.
And so Neil
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Cotty, who was the acting CFO, and Joe Price,
3
who was Bank of America's CFO -- we were in
4
the mode of anything they wanted to see we
5
would provide to them. MR. LAWSKY:
6
Do you know whether Neil
7
Cotty and Joe Price, in addition to Andrea
8
Smith and Steele Alphin, were getting that
9
kind of individual data?
10
MR. LEVANDER:
11
MR. LAWSKY:
12
THE WITNESS:
13
MR. LAWSKY:
About bonuses. About bonuses. I don't know. That was a very compound
14
question.
15
of them got that kind of data, one by one?
16
Because you said you don't know as to all
17
four. THE WITNESS:
18 19
MR. LAWSKY:
Did you talk to her
directly about that? THE WITNESS:
22 23
individuals.
24
Q.
25
Andrea Smith had
name-by-name bonus information.
20 21
Do you personally know whether any
Yes.
For certain
And we'll get back to that.
want to understand.
One thing I
I understand that if someone
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1 2
reached out to you and asked you a question, you
3
would answer the question.
4
employees at Bank of America that affirmatively
5
said, This is what we're doing with comp bonus
6
payments?
7
A.
Were there any
I had an explicit conversation with
8
Steele Alphin on the aggregate bonus pool and on
9
the cash/stock mix, and Andrea Smith was provided
10
with name-by-name numbers at least for some subset
11
of the employee base.
12
Q.
I want to step away from the merger
13
agreement for a second and get some general
14
understanding of the way Merrill Lynch had
15
historically allocated bonuses prior to 2008. MR. LEVANDER:
16 17
to Merrill Lynch December of 2007. MR. MARKOWITZ:
18 19
You understand he comes
Q.
Yes, I do.
I'm assuming that you spoke to people
20
about how things were done historically, and if you
21
have no idea you can answer so. Do you have an understanding of how
22 23
bonuses were paid historically?
24
A.
Not to any significant degree.
25
Q.
Well, how about, do you have an
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internally what we expect the quarter to be,
3
but that also gets constantly refined.
4
whatever happens every single day changes
5
what the expectation is for the quarter.
6
Q.
So
As you mentioned, there were a series of
7
Comp Committee meetings in the fall and December of
8
2008 where the number gradually came down a few
9
times.
10
Do you have a recollection of any of those
meetings in particular? A.
11
Not specifics so that I can say on
12
such-and-such a day we had the following
13
such-and-such discussion. Q.
14
As the number was coming down during the
15
fall and December of 2008, what was the reason for
16
the constant takedown, so to speak? A.
17
Two primary drivers:
One was the
18
continued decline in the expectation for what the
19
industry was going to do, and the second was the
20
continued decline in Merrill's performance. Q.
21
And is there a third -- and by that, is
22
there a third, in that is Bank of America, through
23
any of its employees, asking you to lower the bonus
24
pool?
25
A.
The answer is, they are providing input
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to us on the size of the bonus pool and on the
3
cash/stock mix.
4
with Steele Alphin where he expressed the view that
5
they would like the bonus pool to be less than the
6
expense number, less than $3.5 billion, which I
7
agreed with.
8
Q.
9 10
So I had a specific conversation
Where was Merrill at the time that you
had this conversation with Mr. Alphin? A.
My recollection is that we were already
11
moving there, so there was no real difference
12
between where we were moving anyway and where he
13
had expressed their desire for us to be.
14
specific change that they asked us to do on the
15
cash/stock mix was at their request.
16
have changed the 60/40 to 70/30 other than they
17
asked us to.
18
Q.
Why did they ask you to do that?
19
A.
Again, you're asking me to speculate.
20
The
We would not
You should really ask them that.
21
Q.
Did Mr. Alphin tell you why?
22
A.
I don't recall a specific conversation
23
with him.
However, the two reasons that I
24
generally recall are:
25
higher percentage of cash moves more of the expense
One is that moving to a
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1 2 3 4 5
that took place on November 11, 2008? A.
Not specifically because these materials
were prepared and revised numerous times. Q.
If you could just turn your attention to
6
page 55, which is the year-end calendar, I see here
7
it says on December 31 "cash awards distributed."
8
Do you see that entry?
9
A.
I do.
10
Q.
What does that make reference to?
11
A.
I believe that is the payment of the
12 13
cash portion of the VICP pool. Q.
So by this time, had it been decided
14
that Merrill Lynch would pay out the cash
15
components of its bonus before the year end?
16
A.
When you say "decided," the expectation
17
was that the bonuses would be paid prior to the
18
deal closing; the expectation was that the deal
19
would close on or about December 31, and this
20
document is consistent with that.
21
Q.
When did you first have the expectation
22
that payments would be made before the deal
23
closing?
24 25
A.
When we signed the merger agreement and
the schedule to the merger agreement.
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look.
3
Mike Nierenberg, but he was not there for the full
4
year.
5 6 7
Ultimately, the mortgage area was run by
Q.
The mortgage area, was it called
"mortgage"? A.
Yes.
But there are other places that
8
are mortgage-related assets, so there is commercial
9
mortgages and there are -- historically, there were
10
a couple of proprietary groups that held
11
mortgage-related assets.
12
credit area that had credit-related assets, and
13
there are also historically a couple of proprietary
14
groups that have credit-related assets.
15
why it's easier to think about it as mortgage and
16
mortgage-related assets and credit and
17
credit-related assets rather than each of the
18
individual groups.
19
Q.
Then there is also a
So that's
We were trying to go through earlier
20
this morning the progression of coming up with the
21
bonus pool.
22
its bonus pool for 2008 bonuses?
23
A.
When did Merrill Lynch come up with
The bonus pool was finalized at the Comp
24
Committee meeting on December 8 and ratified by the
25
board.
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Q.
Did you participate in that meeting?
3
A.
I did.
4
Q.
And with respect to the December 8
5
meeting, what was the final pool that was decided
6
upon? A.
7 8
The final pool was approximately $3.2
billion.
9
Q.
And you're speaking in terms of expense?
10
A.
Right.
11
Q.
And I have, from information provided by
With a 70/30 cash/stock split.
12
Bank of America, something that says $2.5 billion
13
in cash and $3.62 billion total pool.
14
sound about right to you?
Does that
15
A.
That sounds about right.
16
Q.
As of December 8, where was Merrill
17
Lynch with respect to its year-to-date losses? A.
18
I don't know the number off the top of
19
my head because I don't happen to know exactly what
20
that number was.
21
October-November results and a couple of days in
22
December.
23 24 25
We would have had
Q.
Would you have projected results to
A.
I don't think you meant to ask it that
date?
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estimate losses were going to be? A.
First of all, the bonus recommendations
4
are the responsibility of the Comp Committee.
5
to the best of my recollection, I would have known
6
where we stood as of that point in time when we
7
were making those recommendations. MR. LAWSKY:
8
Is there a projection on
9
here for what the end of the year will be?
10
Is that what that is, or is that where you
11
are as of November 8 -- the 19 and the 32
12
number. THE WITNESS:
13 14
But
It appears to me to be the
year-to-date estimate.
15
MR. LAWSKY:
16
THE WITNESS:
17
MR. LAWSKY:
To November 8th. Correct. Is there a projection in
18
here for the year where you're going to end
19
up?
20 21 22
THE WITNESS:
Not unless I page through
this, I'm not going to know that. MR. LAWSKY:
Do you recall when you went
23
into the November 8 meeting, had your team
24
worked out an estimate of what you thought
25
things would look like at the end of the
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year? THE WITNESS:
3
As of this date, December
4
8th, we were estimating the quarter to be
5
approximately -- to the best of my
6
recollection, as of this date, we were
7
estimating the quarter to be approximately
8
$14 billion loss pretax, approximately $9
9
billion loss after tax. MR. LAWSKY:
10
So then you would have had
11
a yearly estimate in your head, as well,
12
since you already know the first three
13
quarters.
14
quarters previous, which I think -- were you
15
down 5 after the first three?
You add the 14 to the three
16
THE WITNESS:
17
MR. LAWSKY:
18
No. Were you around 26 for the
year then?
19
THE WITNESS:
20
MR. LAWSKY:
21
THE WITNESS:
I don't want to guess. Do you remember? I don't remember the
22
number.
23
you're correct; you could just add them up.
24
Q.
25
I remember the quarter number.
But
So the actual fourth quarter loss was
about $15 billion?
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A.
After tax.
3
Q.
So it actually went down a little bit --
4
strike that. You didn't have the number yet as of
5 6
December 8; you had just year-to-date through
7
November in terms of $19 billion here? A.
8 9
No.
You're mixing up the numbers.
This
number appears to me to be the quarter to date.
10
You then asked me a question about what the
11
estimate for the fourth quarter was as of this
12
date, which I told you my recollection is $14
13
billion pretax, $9 billion after tax.
14
number for the fourth quarter was ultimately,
15
approximately $21 billion pretax, $15 billion after
16
tax.
17 18
Q.
The final
Understood. MR. LAWSKY:
Let's stop there for a
19
second because I missed this.
20
estimate on December 8 was 14 pretax; it ends
21
up at 21 pretax.
22
how do you explain that difference?
23
just couldn't predict what was going to
24
happen with the rest of December.
25
THE WITNESS:
So the
So the $7 billion delta, Or you
Right, right.
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is determined to reward performance and to retain
3
people, and those numbers would have no impact
4
either on individual performance or on retention. Q.
5
Did you, at any time between December 8
6
and December 31, say, "Wait a minute, we have
7
billions of dollars in losses more than we thought.
8
We need to rethink our bonus determination"? A.
9
We did not change our bonus
10
determination substantially -- in any significant
11
way -- after December 8. Q.
12
Did you consider changing the bonus
13
determinations after December 8 as a result of
14
worsening earnings?
15
A.
Again, I'm going to repeat what I said
16
before.
Because of the $2.3 billion and the $650
17
million that were not related to any individual
18
performance or any retention element, the answer is
19
no.
20
Q.
So you didn't even consider it?
21
A.
We did not consider changing the bonus
22 23
pools after December 8th. Q.
Did you advise anyone from Bank of
24
America of the deteriorating financial condition of
25
Merrill Lynch between December 8 and December 31?
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A.
Bank of America had daily access to the
exact same financial information that I had. MR. LAWSKY:
4
Access is different -- and
5
I understand your answer; I just want to draw
6
down on it a little bit -- access is
7
different than sort of having conversations
8
with you or your guys.
9
happening in terms of you updating them on
10
how things were going?
11
A.
Was that also
The acting chief financial officer, Neil
12
Cotty, sat in meetings and discussions and was
13
totally up-to-speed as to what was happening. MR. LEVANDER:
14 15
will, is that a cash item or a non-cash item? THE WITNESS:
16 17
That impairment of good
Q.
Non-cash item.
Did anyone from Bank of America between
18
December 8 and December 31, either to you directly
19
or to your knowledge, suggest that Merrill Lynch
20
should further reduce its bonus pool from where it
21
had been established?
22
A.
Not to my recollection or knowledge.
23
Q.
Did you have any discussions about that
24
topic with anyone from Bank of America even if they
25
didn't say that you should lower it?
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carrying -- I don't know what the exact number was
3
-- $50 billion, $60 billion, $70 billion worth of
4
cash.
The availability of cash was never an issue. Q.
5
Were the bonus awards that was
6
determined on December 8 at all impacted by your
7
understanding that Merrill would be taken over by
8
Bank of America? A.
9
I can't answer that because the bonuses
10
and the ability to pay the bonuses were tied to the
11
transaction.
12
with Bank of America, we would have done something
13
else.
14
upon what was necessary to both reward and retain
15
the franchise.
16
If we hadn't done the transaction
And the bonus levels were determined based
Q.
I just want to go back.
With respect to
17
the timing issue, who at Bank of America did you
18
have conversations with about the timing?
19
A.
The timing --
20
Q.
Meaning, the December 31 payout as
21 22
opposed to the following year. A.
The timing, as we talked about before,
23
was determined when we signed the merger agreement.
24
The timing was contemplated then, in September, to
25
be prior to the close, and the expectation was
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J. A. Thain
2
always that the close would be on or around
3
December 31.
4
MR. LAWSKY:
Why?
I'm still not clear
5
on why it was important to go in December
6
rather than January with the bonuses.
7
THE WITNESS:
When you say December or
8
January, whether it was December 31 or
9
January 1 or 2, that isn't particularly
10
relevant.
11
be paid prior to the closing, so that the
12
bonuses would be determined by the business
13
people who were running the businesses for
14
the entire year.
15
It was relevant that the bonuses
MR. LAWSKY:
But Bank of America could
16
have figured out with your help, I assume,
17
bonuses in January for the prior year.
18
had access to the books, as you said.
19 20 21
THE WITNESS:
They
This was part of the deal
that they and we negotiated. MR. LEVANDER:
He's already testified
22
that by their requesting that it go from
23
60/40 to 70/30, they were trying to get more
24
expense in Merrill's fourth quarter than
25
their first quarter.
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if we do this at the same time; we're going to be
3
one company, and this way all of our combined
4
employees get their payments at the same time?
5
A.
I don't recall any such discussion.
6
Q.
Did you have any discussion that there
7
might be some integration issues if some employees
8
were getting paid ahead of other employees?
9
A.
No.
We really didn't have that
10
discussion -- to the best I can recollect.
11
have discussions along the lines of lining up
12
levels of compensation to not create those
13
integration problems.
14
Smith suggested some specific changes to accomplish
15
exactly that, to line up compensation levels, but
16
there was never a discussion as to the timing.
17
MR. LAWSKY:
We did
As a matter of fact, Andrea
I'm getting lost on the
18
time line a little with Andrea Smith.
19
you're saying she's making suggestions to
20
particular people's numbers and aligning
21
things, is that pre to the December 8 Comp
22
Committee meeting where the board gives
23
thumbs-up to the numbers?
24 25
THE WITNESS:
When
To the best of my
recollection, no, it's after.
The pool gets
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set on December 8, and then the individual
3
numbers get set after that over the course of
4
the next week or so. MR. LAWSKY:
5
And it was in that process
6
where she had a look-see at everyone's
7
number, and she was having input into them? THE WITNESS:
8 9 10
She didn't
necessarily have a look at everyone's number, but she had access to everyone's number. MR. LEVANDER:
11 12
Correct.
Did she have input before
December 8? THE WITNESS:
13
She was part of the
14
discussions of the bonus levels.
15
remember her specific input. MR. LAWSKY:
16
I don't
This is news to me.
I
17
didn't realize -- I thought everything was
18
set; as of the December 8 meeting the board
19
votes.
20
lag where the pool is set, but the individual
21
numbers are still getting worked out.
22
But you're saying now there is a week
THE WITNESS:
Yes.
That's actually one
23
of the reasons why the numbers turn out to be
24
slightly different than the numbers that get
25
approved on December 8 because when you do
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1 2
the individuals it doesn't come out exactly
3
right. MR. LAWSKY:
4
And then you have to go
5
back to the board with those individual
6
numbers or back to the Comp Committee? THE WITNESS:
7
Certain individual numbers
8
get approved at a final Comp Committee
9
meeting, which was sometime in December. Q.
10
Did Andrea Smith ever sit down with you
11
before the end of 2008 and indicate to you what
12
certain types of employees make at Bank of America
13
in certain types of positions?
14
A.
Yes.
15
Q.
For example, a Bank of America equity
16
analyst would make about this kind of money -- that
17
type of a thing. A.
18
Yes.
It wasn't equity analyst -- but
19
Bank of America HR person, Bank of America Risk
20
person.
21
Q.
Which categories did she go through with
A.
I don't recall specifically, but it was
22 23 24 25
Yes.
you?
things like Q.
REDACTED
.
And did you then compare that in your
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own mind with what -- strike that. Did you share with Andrea Smith what the
3 4
comparable people at Merrill made in those
5
positions?
6
A.
Yes.
7
Q.
And how did it shake out?
8
A.
This discussion is what led to certain
9
changes in the comp numbers where we typically
10
brought the Merrill number down to be more in line
11
with the Bank of America number -- I'm sorry, one
12
other area which I just remembered is the
13
Communications and PR area.
14
Q.
But in each of the areas, as a general
15
matter, the Merrill employees in the same positions
16
were earning more than the Bank of America people
17
in the same positions?
18
A.
You can't make that blanket statement,
19
but in the infrastructure parts of the business
20
that was generally true.
21
MR. LAWSKY:
Did Andrea Smith focus in
22
on any particular people, do you recall,
23
whose numbers she thought were too big?
24
THE WITNESS:
She did --
25
MR. LAWSKY:
Or too small?
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THE WITNESS:
I don't recall any of them
3
being too small.
4
individuals who she thought were high, who we
5
changed and brought down.
6 7 8 9
Yes.
MR. LAWSKY:
She did have some
Who do you remember of
those people? MR.
LEVANDER:
I've been directed not
to disclose, by the company, individual names
10
other than the names of the top people who
11
are under Section 16.
12
Bank of America counsel.
13
on the phone with Mr. Liman --
14
MR.
LAWSKY:
We were directed by If you want to get
If you don't want to tell
15
us the names, you can just say "I don't want
16
to tell you the names."
17
MR. LEVANDER:
He has no problem telling
18
the names.
19
Bank of America, and I'm following that
20
direction.
21 22 23 24 25
We were directed by counsel for
MR. LAWSKY:
I'm asking, Do you want to
give us the names? MR. LEVANDER:
He's given you the
category -MR. LAWSKY:
I'm not asking you for the
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1 2
numbers that people got.
3
Andrea Smith asked numbers to come down for.
4
Are you telling me Bank of America doesn't
5
want you to disclose that? MR. LEVANDER:
6
I'm asking who
That's my understanding,
7
but I'll tell you what.
8
I'll try to find out if that's what the
9
direction was. MR. LAWSKY:
10 11
At the next break
Let the record reflect the
witness is refusing to answer. MR. LEVANDER:
12
At direction of counsel
13
-- at the direction of Bank of America's
14
counsel. MR. LAWSKY:
15
I'm not calling Mr. Liman
16
because it's your deal with him, but if you
17
can work that out it would be great. (Exhibit 4 was marked for
18 19
identification.)
20
Q.
21
Exhibit 4 --
I'm handing you what's been marked as
MR. LAWSKY:
22
Let me follow up with one
23
thing:
Was it your understanding that Miss
24
Smith was speaking with, if you know, with
25
Mr. Alphin regularly based on your
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1 2
Liman's objections are.
3
given me a direction.
4
confidentiality obligations even though he's
5
an ex-employee; those exist.
6
let's go on. MR. LAWSKY:
7
All I know is, he's Mr. Thain has
Therefore,
Let me try to understand a
8
few things.
Have you entered into any type
9
of severance agreement with Bank of America?
10
THE WITNESS:
11
MR. LAWSKY:
I have not. So with respect to -- and
12
earlier, were you, in fact, asked to leave?
13
Is that the correct characterization?
14
THE WITNESS:
15
MR. LAWSKY:
Yes. Post departure, has there
16
been any -- even if not in writing -- any
17
sort of agreements or joint agreements or any
18
kind of cooperation agreement with Bank of
19
America? THE WITNESS:
20 21
Q.
Not with me.
I want to switch gears a little bit and
22
go back to the fourth quarter losses.
Did you ever
23
consider whether Merrill Lynch should disclose its
24
losses to its investors?
25
MR. LEVANDER:
In what period of time?
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1
MR. MARKOWITZ:
2 3
2008.
4
A.
The fourth quarter of
Merrill Lynch, as a policy, doesn't make
5
projections, doesn't give guidance and doesn't
6
disclose interim results.
7
Q.
And a lot of firms have that and depart
8
from that policy in times when there's a serious
9
deviation, and given the deviation that was
10
occurring in the fourth quarter of 2008, did you
11
consider whether or not it was appropriate to make
12
a disclosure?
13
A.
The market conditions were generally
14
known, and we would not have disclosed interim
15
results in that fourth quarter.
16
Q.
So you did not consider doing that?
17
A.
That discussion topic of interim results
18
was one that comes up periodically, but we
19
maintained that since we don't give guidance, and
20
since we don't give projections, and since we don't
21
disclose interim results, that it would not have
22
been appropriate to do so then.
23
Q.
Did the issue come up in the fourth
24
quarter of 2008 of whether or not it was
25
appropriate to disclose the losses that were
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accumulating on the books? A.
3 4
I don't recall any specific discussion
about that topic.
5
Q.
How about a general recollection?
6
A.
There was some discussion about the
7
results, and there is a discussion every Monday
8
about the results, which include our general
9
counsel.
So there are always ongoing discussions
10
about our results, but I don't recall any specific
11
discussion about do we need to disclose. Q.
12
Did anyone approach you and say, "I
13
think we've got to make an announcement about where
14
we were given the quarter"?
15
A.
No.
16
Q.
Did anyone discuss whether -- strike
17
Not to my recollection.
that.
18
Did you consider whether Merrill Lynch
19
should disclose its departure from prior practice
20
in issuing bonuses before the end of the calendar
21
year?
22
MR. LEVANDER:
I'm not sure what the
23
departure of prior practice was.
If you want
24
to ask the question whether they considered
25
disclosing the payments of bonuses in
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1 2
December on or about December 31, that's
3
fine.
4
A.
5
I don't recall any discussion about
disclosing the timing of payments of the bonuses. Q.
6
Did you consider disclosing that you'd
7
issue the bonuses -- made compensation bonus
8
awards, and several billions in additional losses
9
had accrued after setting those bonuses?
10
A.
Ask the question again, please?
11
Q.
Did you consider disclosing after
12
December 8, and you had set bonus awards, that
13
bonus awards had been set, and since that time
14
there had been several billion dollars in losses? A.
15 16 17 18 19
I don't recall that discussion at that
time. Q.
Is that something that you think an
investor would want to know? A.
Investors were aware that we were
20
accruing bonuses, and, as I said before, we don't
21
make projections, we don't give guidance, and we
22
don't release interim results.
23
Q.
Do you think investors would want to
24
know that you set bonuses based on a number even
25
though you knew there were multiple billions of
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Page 150 J. A. Thain
1 2
dollars in losses that incurred after you set the
3
number?
4
A.
I'm going to answer the same way.
5
Investors were aware that we were accruing bonuses,
6
and we don't disclose interim losses as a matter of
7
policy.
8
Q.
9 10
Investors knew that you were accruing
money for bonuses, but they didn't know that you were going to pay them out early, did they? A.
11
The concept of paying it out early, as I
12
said before, we never contemplated disclosing the
13
timing of the payment of the bonuses.
14
Q.
15
neutral way:
16
have an understanding that Merrill Lynch would be
17
paying bonuses before the end of calendar year
18
2008?
19
A.
Let me ask the question in a more Would an investor in Merrill Lynch
Since the investors were aware that we
20
were accruing bonuses, and the investors would be
21
aware of the P and L impact of those payments, I
22
don't see that the specific timing is relevant. MR. LAWSKY:
23
Let's draw a little simple
24
line.
If that's what's going on in the
25
economy in general, wouldn't an investor want
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1 2 3
and Bob McCann. Q.
And what was the thinking behind
4
awarding that group of people a strategic
5
transition payment?
6
A.
The discussion of that as an option,
7
which, as I said before, was ultimately rejected,
8
was compensating the senior executives for
9
executing a transaction that was in the best
10
interest of Merrill shareholders.
11
Q.
And you supported the payments?
12
A.
No.
It was a discussion we had, and in
13
the end, I recommended to the board that I receive
14
no bonus.
15
four members, and in the end, I and they also
16
recommended that they receive no bonus.
We then had a discussion about the other
MR. LAWSKY:
17
Do I have this right?
So
18
the five people you're willing to talk about
19
today all got no bonuses? THE WITNESS:
20 21
Q.
Correct.
The conversation of these strategic
22
transition payments started in November; is that
23
right?
24 25
A.
I don't recall exactly but sometime in
that time frame.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit D
-------------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-------------------------------------------------------------
EXAMINATION of KENNETH LEE LEWIS, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 26, 2009 at 4:30 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 5 K.L. Lewis
1 2
Q.
Do you have any questions at this time?
3
A.
No. MR. MARKOWITZ:
4 5
your appearance.
6
MR. LIMAN:
Counsel, please identify
Lewis Liman, James Wyatt,
7
Trisha Lawson and Catharine Slack for the
8
witness. MR. MARKOWITZ:
9 10 11 12 13
Q.
Thank you, Counsel.
Could you please state your Social
Security number for the record? A.
REDACTED . MR. MARKOWITZ:
Counsel, I know we've
14
been having a discussion about if Bank of
15
America will provide a list of the top 200
16
bonus recipients of Merrill Lynch, and I just
17
want to be clear that Bank of America is
18
refusing to do that.
19
MR. LIMAN:
Let me do something on the
20
record.
21
office of the attorney general to produce
22
information in redacted form, which we did.
23 24 25
We had reached an agreement with the
MR. LAWSKY:
Which information did you
produce? MR. LIMAN:
Some bonus information in
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Page 6 K.L. Lewis
1 2
redacted form, which we did several weeks ago
3
following a conversations with the attorney
4
general's office.
5
the other day.
6
it.
7
attorney general's office agrees to keep it
8
private and confidential and agrees to the
9
court order that is currently in place.
10
We did receive a request
We have refused to produce
We will produce information if the
Q.
With respect to the court order that's
11
in place, I believe yesterday several attorneys --
12
or at least an attorney from the New York attorney
13
general's office, I think it was Ben -- offered
14
that any production of specific information would
15
be maintained subject to the temporary
16
confidentiality order put in place by Judge Fried
17
on Tuesday.
18
MR. LIMAN:
If you're agreeing that that
19
could be made permanent then we should
20
discuss it.
21 22 23
MR. LAWSKY:
What do you mean "made
permanent"? MR. LIMAN:
Meaning that you will
24
propose the order staying in place, and we
25
will have authority to enforce the order.
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Page 7 1 2 3 4
K.L. Lewis MR. LAWSKY:
Do you mean staying in
place regardless of what the court does? MR. LIMAN:
Correct.
I understand
5
you're challenging the order.
6
not to challenge the order and to agree to
7
what the judge has put in place, then we will
8
take it back and confer with the legal staff
9
at Bank of America, and I believe we will be
10 11
If you decide
able to produce the information. MR. MARKOWITZ:
Just to be clear, we're
12
not challenging anything right now.
13
order was a temporary order that was put in
14
place to allow you to make an application
15
regarding confidentiality, and what we are
16
doing is saying subject to the time when you
17
can seek a court order of confidentiality
18
order we would agree to keep it confidential
19
to preserve your rights.
20
MR. LIMAN:
The
That's what I understand.
21
To those circumstances we are not agreeing to
22
produce the document, the unredacted
23
information.
24
MR. LAWSKY:
25
MR. LIMAN:
On what grounds? Do we need to waste the
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Page 8 K.L. Lewis
1 2
witness's time? MR. LAWSKY:
3
No.
But let's just do
4
this.
Frankly, if you lose in court, you're
5
going to have to give it to us anyway.
6
MR. LIMAN:
7
MR. LAWSKY:
So I'll address it in court. Fair enough.
8
to waste your time.
9
with a subpoena now.
10
MR. LIMAN:
11
THE WITNESS:
12
I don't want
We're going to serve you
That's fine. We got off to a great
start. MR. LAWSKY:
13
We're asking for this
14
information from your lawyers for a long
15
time, Mr. Lewis.
16
been provided. MR. LIMAN:
17 18
It's surprising it hasn't
That, actually, is not true
at all. MR. LAWSKY:
19 20
ago.
21
Q.
The letter was 2 1/2 weeks
Mr. Lewis, I have some questions about
22
the Bank of America merger with Merrill Lynch.
23
there come a time when you considered undoing the
24
merger between Bank of America and Merrill Lynch?
25
A.
Yes.
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Did
Page 9 K.L. Lewis
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Q.
When did you first consider doing that?
3
A.
I want to make sure I get the date
4
right.
5
if that's a Sunday because I was in New York, and I
6
was about to go home -- and what triggered that was
7
that the losses, the projected losses, at Merrill
8
Lynch had accelerated pretty dramatically over a
9
short period of time, as I recall, about a week or
10
I'm pretty sure it was December the 13th --
so.
11
Q.
How did you come to learn of that?
12
A.
Joe Price, our CFO, called me.
13
Q.
Take me through what Mr. Price
14 15
communicated to you on that call. A.
He basically said what I just said:
The
16
projected losses have accelerated pretty
17
dramatically.
18
month, so that it was a possibility that at least
19
some of the marks could come back, but now we had
20
not very many business days because Christmas was
21
coming and all of that.
22
just of the acceleration of the losses.
23 24 25
Q.
We earlier on had more days in the
So we became concerned
What did Mr. Price tell you about the
extent of the losses, basically? A.
He just talked about the amounts.
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1 Q.
2 3
And what were they as of the time you
spoke to Mr. Price? MR. LIMAN:
4 5
remember.
6
A.
To the extent that you
To the extent that I remember, the
7
losses had accumulated to about $12 billion after
8
tax.
9
Q.
Anything else?
10
A.
That was the whole focus. MR. LAWSKY:
11 12
and L at the time?
13
THE WITNESS:
Were you getting a daily P
We were getting
14
projections.
I was getting a P and L at Bank
15
of America, but we were getting projections.
16
I don't recall getting them every day, but I
17
was either hearing about them and in some
18
cases I saw them.
19
MR. LAWSKY:
Can you explain, when you
20
say a conversation with Price is what got you
21
thinking this way, if you were getting these
22
P and L's over time, what was it about the
23
Price conversation which put you over the
24
edge?
25
THE WITNESS:
Just that that amount --
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I'm not sure I was getting them every day.
I
3
don't recall getting them every day because
4
they were projections, not daily P and L's.
5
So the concern was, we had had a forecast on
6
December 5th, as I recall, of $9 billion, but
7
$3 billion pretax was a plod (phonetic) just
8
for conservative reasons; so what you saw was
9
basically a 7 to 12 if you could go through
10
the plod, and then you get to the $12
11
billion.
12
the original amount in a very short period of
13
time.
So a staggering large percentage of
MR. LAWSKY:
14
Just so the record is
15
clear, I have your calendar in front of you,
16
although you don't -- Counsel produced it.
17
December 14 was on a Sunday.
18
to arrive 3:30."
19
that day?
You're in New York leaving
20
THE WITNESS:
21
MR. LAWSKY:
22
the meeting with Price? THE WITNESS:
23 24 25
It says "depart
Yes. So is that the day you have
Not a meeting, a phone
call. MR. LAWSKY:
So Sunday, December the
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REDACTED
6
REDACTED
7 8 9 10 11 12
Q.
As of this time -- we spoke a little
13
earlier about the Merrill Lynch 2008 bonus pool.
14
When was the first time that you learned that
15
Merrill Lynch decided to pay out its 2008 bonuses
16
before 2009?
17
A.
I don't remember the exact time.
18
Q.
About?
19
A.
I don't remember.
20
MR. LAWSKY:
21
THE WITNESS:
22
MR. LAWSKY:
How did you learn that? Steele Alphin told me. And what do you recall
23
about that conversation?
24
THE WITNESS:
25
I recall that he said that
he attempted to get them not to do that, but
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that the board and John and the Compensation
3
Committee had done it. MR. CORNGOLD:
4 5
already.
6
THE WITNESS:
7
MR. CORNGOLD:
8
So it had happened
Yes. So we're talking after
Thanksgiving, do you believe? THE WITNESS:
9
I don't remember the exact
10
date.
11
with the economy and with the breakdowns.
12
Again, we were in the midst of issues
MR. LAWSKY:
Are you saying you wanted
13
Merrill Lynch to pay out the bonus pool after
14
the quarter ended end of December and pay it
15
out in January?
16
THE WITNESS:
First of all, that's our
17
practice, and, secondly, to the best of my
18
recollection, there were conversations by
19
Steele, and, I was told, by Andrea, to get
20
them to do it like we do it.
21
MR. LAWSKY:
22
THE WITNESS:
23
MR. LAWSKY:
Andrea Smith, you mean? Yes. And those conversations, to
24
your knowledge, predated their doing it on
25
December 8th?
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1
THE WITNESS:
2 3
knowledge.
Yes.
MR. LAWSKY:
4
To the best of my
Prior to December 8th did
5
you have an expectation that Merrill Lynch
6
would be paying bonuses in January? THE WITNESS:
7
It wasn't a focused,
8
conscious assumption that they would, but I
9
would have expected them to until they made
10
their decision. MR. CORNGOLD:
11
Was it a practice in the
12
industry to pay bonuses after the end of the
13
year?
14
THE WITNESS:
Actually, I don't know
15
what others do.
16
we pay them on February 15.
17 18
I just know what we do, and
MR. CORNGOLD:
You don't know whether
other financial entities pay them before?
19
THE WITNESS:
20
MR. CORNGOLD:
I do not. Have you ever heard of
21
paying out bonuses before you know what your
22
year end actually looks like?
23
THE WITNESS:
I've heard it, but not
24
investment banks.
I've heard about
25
commercial banks doing that.
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MR. CORNGOLD:
3
THE WITNESS:
They didn't stop him. The way I've had our
4
ability is described as this:
In the first
5
negotiations there was a ceiling set on how
6
much they could pay.
7
could advise or consult -- I forgot the right
8
word -- but we could not actually make a
9
decision for them.
Then I was told that we
That's reenforced -- what
10
I've been told -- that as long as a company
11
is a public company with a separate board and
12
separate committees, that you cannot be
13
perceived as running the company; therefore,
14
you cannot be making decisions on their
15
behalf.
16 17 18
MR. CORNGOLD:
What would happen if you
were perceived as running the company? THE WITNESS:
I was told --
I don't
19
know if it's not legal or it's against some
20
security law.
21
that you cannot be perceived to --
22 23 24 25
I've always been instructed
MR. LIMAN:
I'm asking not to get into
conversations you had with counsel. MR. LAWSKY:
But isn't it true that you
sent a message to Thain that he was not to
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1 2 3
take a bonus higher than yours? THE WITNESS:
No.
I did not send that
4
message.
All that I remember about that is,
5
Steele related to me that there was a first
6
conversation about -- please give me license
7
on the number -- but a conversation about a
8
$40 million bonus not tied to the company's
9
loss, but tied to the deal getting done.
I
10
don't know all that happened, but I was told
11
that --
12
Andrea -- he was told very strongly that you
13
should not do that; that you would damage
14
yourself with the Bank of America board if
15
you do that, and if you ever wanted a chance
16
to be in the running for my job then that
17
would eliminate it.
18
MR. CORNGOLD:
I don't know if Steele did it or
Did you have an
19
understanding that he was told that about
20
when the bonuses would be determined, when
21
the total bonus would be determined?
22
THE WITNESS:
I don't know that.
Then
23
sometime after that -- I don't know how the
24
progress was made or whatever -- I was told
25
that there was an agreement that he should
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K.L. Lewis
2
make something less than me, and then,
3
subsequently, as things got worse and worse,
4
I told our board that nobody in our team
5
would get anything.
6
nine people, I think.
7
maybe two, three or three, four.
8 9 10
MR. CORNGOLD:
You understood
expressed about his bonus; is that correct? THE WITNESS:
12
MR. CORNGOLD:
14
I think he did it with
specifically what the threat was to Mr. Thain
11
13
I think that was like
The threat -The threat if you take
the 40 it's going to look bad for the board. THE WITNESS:
That's what Steele related
15
to me -- I don't know if he or Andrea related
16
-- that was relayed to him that that would
17
not be acceptable to our board.
18
have a chance to succeed me if he did.
19
MR. CORNGOLD:
He would not
But you don't know if
20
that threat was made with respect -- and
21
"threat" may be a bad word.
22 23 24 25
MR. LIMAN:
You could say "if that
message would be conveyed" or something. MR. CORNGOLD:
If those consequences
were told to Mr. Thain about when the bonuses
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1 2 3
would be set and delivered. THE WITNESS:
I don't know.
All I
4
remember is that -- again, I don't remember
5
if it was Steele or Andrea -- but they were
6
pushing him to follow a methodology where he
7
would pay them after.
8 9
MR. CORNGOLD:
Did you say to either of
them in words or substance, Tell him that if
10
he pays the bonuses before January 1st,
11
that's going to adversely affect his position
12
with Bank of America's board?
13
THE WITNESS:
I did not tell them that,
14
and I don't know how strongly they said it,
15
but I was told they were saying it pretty
16
strongly.
17
MR. CORNGOLD:
With respect to his
18
bonus, you knew what they were saying with
19
respect to his bonus, correct?
20
THE WITNESS:
21
MR. CORNGOLD:
Correct. But you didn't know what
22
they were saying with respect to the over $3
23
billion in bonuses that were being set for
24
everybody else at Merrill Lynch?
25
THE WITNESS:
No.
I was told that
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Andrea was helping John look at those
3
bonuses, but I don't know anything more. MR. CORNGOLD:
4
And you knew that the
5
expression of the consequences to Mr. Thain
6
was successful in getting him to change his
7
decision about his own bonus, correct? MR. LIMAN:
8 9
Would you mind asking him an
open-ended question? MR. CORNGOLD:
10
I though I was asking an
11
open-ended question.
12
what an open-ended question is.
13
MR. LIMAN:
14
THE WITNESS:
I guess I don't know
"Did you know" -I don't know -- the $40
15
million bonus to one person when you had a
16
loss clearly would have destroyed with our
17
board.
And so that's pretty severe. MR. CORNGOLD:
18
But you didn't think that
19
$3-plus billion bonuses set before the
20
company knew what the results were going to
21
be for the company would have the same impact
22
with your board? THE WITNESS:
23
I don't know what they
24
said.
I don't know how strongly they said --
25
all I know is, I was told that they urged him
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1 2
very strongly not to pay them early.
3
know if they gave consequences like that.
4 5
MR. CORNGOLD:
I don't
You didn't tell them to
give consequences like that?
6
THE WITNESS:
7
MR. LAWSKY:
No. We had other testimony that
8
the early payment of the Merrill bonuses was
9
contemplated back in September when the deal
10 11 12 13 14
was struck.
Is that false?
THE WITNESS: time of payment. MR. LAWSKY:
THE WITNESS:
16
MR. LAWSKY:
Right. Were you involved in those
negotiations?
18
THE WITNESS:
19
MR. LAWSKY:
20
Being an issue in the
initial negotiations.
15
17
I have no recollection of
No. Were you involved in the
September negotiations in general?
21
THE WITNESS:
22
MR. LAWSKY:
Yes. Were you involved at all in
23
the negotiations over the bonus provision
24
with regard to the $5.8 billion?
25
THE WITNESS:
I was not.
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1
THE WITNESS:
2
First of all, you start
3
with a portion of it that's predate because
4
you have guarantees and signing bonuses, etc.
5
I don't know enough about their individual
6
contracts to know how many of those there
7
were --
8
MR. CORNGOLD:
9
MR. LIMAN:
Let him finish.
MR. CORNGOLD:
10
It wasn't relevant --
If I ever interrupt you
11
before you finish an answer, please make sure
12
that you finish the answer. THE WITNESS:
13
-- so you have guarantees,
14
signing bonuses, and then there are
15
individuals that you would be vulnerable to
16
losing that would cause your revenue
17
projections for the following year to be
18
diminished. (Recess was taken.)
19 20
Q.
Staying on the topic of the Merrill
21
Lynch bonus payments, after you learned -- you have
22
the Joe
23
about in the beginning of today's testimony where
24
you learned about the fourth-quarter deterioration
25
at Merrill, do you revisit the issue at all, or do
Price conversation that we started talking
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1 2
you visit the issue of Merrill Lynch bonuses? A.
3
No.
Again, put it in context of that
4
issue, again, seeing the market deteriorating
5
within our own company, seeing losses going up
6
rising pretty rapidly, and beginning to wonder if
7
we needed to cut our dividend.
8
in which I was operating. Q.
9
That's the context
That's why I don't understand.
The
10
question being, given year-end bonuses, bonuses are
11
supposed to be based on -- to my understanding --
12
year's performance.
13
year performance was going to be significantly
14
worse than it had been before. Did you reach out,
15
or have your people reach out to the Merrill people
16
saying, You got to knock the number down? A.
17
You were learning that the
I don't know if we did or we didn't, but
18
I was concerned about some pretty big things going
19
on.
20
REDACTED
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Page 117 K.L. Lewis
1 Q.
2 3
I'm talking -- the bonuses weren't paid
until December 31st. A.
4
Right.
My point is, if you could think
5
about the context in which I was operating, I was
6
not thinking about when bonuses were paid. Q.
7 8
How about the amount of bonuses that
were going to be paid?
9
A.
I wasn't thinking about bonuses.
10
Q.
Were you thinking about the integration
11
of Merrill Lynch and Bank of America? A.
12
Some, but more about these other things. MR. CORNGOLD:
13
Even in December of 2008
wasn't $3.5 billion a material number?
14
THE WITNESS:
15
I'm not saying it wasn't
16
material.
I'm saying I had people that I
17
trusted and had great confidence in handling
18
the issue -- and who I know are very
19
conservative people.
20
Q.
And they were working with John Thain to
21
bring those numbers down?
22
understanding? A.
23
Is that your
It was my understanding that Andrea was
24
making a lot of progress in getting the numbers to
25
him.
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1
THE WITNESS:
2
No.
But I couldn't tell
3
you for a fact that it is.
4
Q.
5 6 7
signature? A. of Randall.
I don't remember seeing a full signature I do recognize these law firms. MR. LAWSKY:
8 9
Do you recognize Miss Morrow's
I want to switch to the
Merrill bonuses, the individual names.
You
10
were saying you don't know anyone on here.
11
believe your testimony is -- correct me if
12
I'm wrong -- the only bonuses you would
13
personally be aware of for 2008 would be
14
direct reports to you, and they all got zero. THE WITNESS:
15 16 17
I
I may know somebody on
there. MR. LAWSKY:
You can't match them up --
18
you can't match their bonus.
19
top investment banker, could you tell me what
20
bonus he got?
21 22 23
THE WITNESS:
If I named your
I couldn't tell you where
he was on that. MR. CORNGOLD:
Does Bank of America have
24
a policy with its employees that the
25
employees are required to keep their
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Page 138 K.L. Lewis
1 2 3 4 5 6
compensation confidential? THE WITNESS:
I don't know if we do or
we don't. MR. CORNGOLD:
of Bank of America at various banks for --
7
THE WITNESS:
8
MR. CORNGOLD:
9 10
You've been an employee
Almost 40 years. Are you aware of any
policy ever that you were instructed to keep your compensation confidential?
11
THE WITNESS:
12
MR. CORNGOLD:
13
MR. LIMAN:
14
MR. CORNGOLD:
15
it was publicly recorded.
16
you ever signed a confidentiality agreement?
17
That I was? Yes.
As an employee.
His is publicly recorded.
THE WITNESS:
I mean previous to when
No.
I'm asking have
I would think I was
18
supposed to keep my compensation
19
confidential.
20
MR. CORNGOLD:
Have you ever given
21
anyone instruction to keep their compensation
22
confidential?
23
THE WITNESS:
24
MR. CORNGOLD:
25
No. In the 40 years that you
have been at Bank of America?
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1 2
THE WITNESS:
3
MR. CORNGOLD:
Not that I recall. Have you ever
4
participated in negotiating bringing in
5
people from another bank to Bank of America?
6
THE WITNESS:
7
MR. CORNGOLD:
Yes. And have you ever
8
negotiated compensation with the person that
9
you were bringing in from another bank? THE WITNESS:
10 11
Yes.
But it was a long
time ago. MR. CORNGOLD:
12
Today, in the last three
13
years, you don't participate in bringing in
14
high-level people to Bank of America for
15
negotiations? THE WITNESS:
16 17
Yes.
But I wouldn't be
talking about compensation. MR. CORNGOLD:
18
You would discuss with
19
other people at Bank of America what
20
compensation you should offer?
21
THE WITNESS:
22
MR. CORNGOLD:
Yes. And when you make those
23
discussions, are you generally aware of
24
compensation that they are receiving at other
25
banks?
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1 2
MR. LIMAN:
3
MR. LAWSKY:
Why don't you wait and see? I just want to put one
4
thing on the record.
I just want to tell Mr.
5
Lewis, I think you're making a big mistake by
6
not turning over the list to us.
7
be direct about it.
8
worth, we have agreed to accept that list
9
under the terms of the judge's temporary
I want to
For what my opinion is
10
order, which means it will be held
11
confidential.
12
see no valid basis for not turning it over to
13
us.
14
giving you a subpoena.
15
not that way, so I would ask you maybe on
16
your flight home or whenever, to reconsider
17
and think about that because I think it would
18
be a much better route to go down.
19
It's important to us, and we
That's why we went to the next step of
THE WITNESS:
We prefer to do this
The only thing that I'm
20
concerned about is our associates.
21
it be a pretty big violation of trust to
22
invade somebody's privacy like that?
23
MR. CORNGOLD:
Wouldn't
Either a court is going
24
to rule finally that the materials should be
25
kept confidential or it shouldn't.
If the
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Page 161 K.L. Lewis
1 2
court rules that they should be kept
3
confidential, we're just delaying it.
4
court rules not, we're also just delaying it.
5 6 7 8 9
MISS LAWSON:
Why don't you just agree
to a confidentiality agreement? MR. CORNGOLD:
Because we think it
doesn't need to be kept confidential. MISS LAWSON:
You think it would be
10
appropriate to publish those names and
11
incomes in The Wall Street journal?
12
If the
MR. LAWSKY:
I didn't want to invite a
13
debate on this right now.
14
opinion.
15
directly to think about it.
I appreciate your
I just want to urge Mr. Lewis
16
THE WITNESS:
That's my only issue.
17
(Page break for jurat.)
18 19 20 21 22 23 24 25 U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit E
-------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-------------------------------------------------
EXAMINATION of ANDREA SMITH, taken at State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 12, 2009 at 2:10 p.m., pursuant to a Subpoena, before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 30 A. Smith
1
MISS ANDREADIS:
2
Or whether she was
3
aware that that was a consideration.
4
A.
That was not a deciding factor when Mr.
5
Thain and I were looking at the organizational
6
alignment.
7
so, Here's commercial banking that will now be a
8
division reporting to you, Mr. Thain.
9
Darnell was the man that ran that.
It was focused around the businesses,
David
Here is the
10
skill set that he has.
11
that particular skill set that we should evaluate,
12
or should David Darnell be the person running that
13
business?
14
Q.
Are there other people with
In addition to this working with Mr.
15
Thain, did you have any role with respect to the
16
allocation of Merrill Lynch's 2008 incentive
17
compensation?
18 19 20
A.
I did not have a role in the allocation
process. Q.
Were you updated frequently, or were you
21
made aware of the process at all?
22
knowledge of the process?
Did you have any
23
A.
I did have knowledge of the process.
24
Q.
Okay.
25
Let's start with your first
knowledge of the process.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 31 A. Smith
1 A.
2
The first knowledge I had about the
3
process that they were going to use was in the
4
first half of November, which was when I discovered
5
that they were going to be paying out prior to the
6
1st of the year. Q.
7
So prior to November 2008, describe even
8
in general any type of knowledge that you had.
9
you have any type of knowledge at all other than
10
they were Merrill Lynch bonuses going to be paid
11
out?
12
A.
Did
I believe that the end of October or the
13
1st of November I had a conversation with Mr. Thain
14
around how much the incentive accrual was in their
15
financial plan, and at that time he told me roughly
16
$750 million dollars a quarter, and so I said,
17
"Okay, then $3 billion would be the starting point
18
of your incentive accrual," and he said, "We'll
19
need more than that."
20
Mr. Alphin, and that's when I learned that there
21
was an amount that had been talked about in the
22
merger deal.
23
Q.
And then I was talking to
So going back to when Mr. Thain told you
24
about the approximately $3 billion and he said he
25
needed more, could you please describe that
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 42 A. Smith
1 2
intimated that it would.
3
still didn't know there had been a meeting
4
prior to Mr. Alphin and Mr. Thain speaking. MR. MARKOWITZ:
5
At that point, we
By the time of your
6
debriefing -- let me ask it in a different
7
way.
8
met that he just had this call?
9 10
Did Mr. Thain tell Mr. Alphin when they
THE WITNESS: MR. MARKOWITZ:
He did not. And did Mr. Alphin
11
express -- when did Mr. Alphin come to learn
12
about the call?
13
THE WITNESS:
When I found out about it
14
the next day and shared that fact with Mr.
15
Alphin.
16
MR. MARKOWITZ:
Did you get debriefed,
17
find out and call again?
18
sequence of events?
19
THE WITNESS:
What was the
Mr. Alphin debriefed me on
20
his conversation with Mr. Thain.
The next
21
day, in Charlotte, as I thought how are we
22
going to -- it's November 11th or 12th, and
23
based on the debriefing that Mr. Alphin gave
24
me on paying out in December, how in the
25
world are the Merrill Lynch people going to
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 43 A. Smith
1 2
do that?
So I'm going to call Mr. Thain's
3
current direct reports.
4
Fleming, "How are you all going to pay at the
5
end of December when you haven't even started
6
the process."
7
that we had a meeting?"
8
know."
9
And I said, "I haven't seen anything."
I called Greg
He said, "Did you not know I said, "I did not
He said, "Have you seen the minutes?" At
10
that time, Michael Ross, their Compensation
11
head, e-mailed that document, which then I
12
shared with our head of compensation, Mark
13
Behnke, and Steele Alphin.
14
MR. MARKOWITZ:
What was Mr. Alphin's
15
reaction when you let him know this call had
16
taken place?
17
THE WITNESS:
18
MR. MARKOWITZ:
19
THE WITNESS:
Surprise, I think. What did he say? I don't recall exactly
20
what he said, but I do recall giving him the
21
document.
22
MR. MARKOWITZ:
Was he upset?
Was it
23
the kind of thing he would have wanted to
24
know about before it happened?
25
THE WITNESS:
I don't know.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 44 1
A. Smith
2
MR. MARKOWITZ:
Was there anything along
3
the lines of, We discussed all these things,
4
and Mr. Thain or John -- however you referred
5
to him -- didn't even mention that? THE WITNESS:
6
I don't recall that
7
specific conversation with Mr. Alphin when I
8
gave him the document, but I do recall with
9
Mr. Behnke, we had been been planning and
10
assuming a January time line for payout and
11
working quite closely with the Merrill Lynch
12
Compensation team; so this was big news for
13
us.
14
at Merrill Lynch hadn't shared that with Mr.
15
Behnke was annoying for all of us, quite
16
frankly.
17
And the fact that the Compensation team
MR. MARKOWITZ:
You have been through, I
18
take it, several of these processes of
19
allocating year-end bonuses before all of
20
this occurred; is that right?
21
THE WITNESS:
22
MR. MARKOWITZ:
23
been with Bank of America?
24
THE WITNESS:
25
MR. MARKOWITZ:
Yes. And how long have you
Almost 21 years. So you should have a
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Page 60 A. Smith
1 2
financial performance of the company. Q.
3 4
Did you ever discuss a specific number
with Mr. Thain or Mr. Alphin? A.
5
I did not discuss a specific number with
6
Mr. Thain, other than to say that I thought it
7
should be lower.
8
meeting with Mr. Thain, I don't recall that we
9
landed on a specific number, but I had shared the
10
$750 million a quarter accrual that Mr. Thain had
11
told me. Q.
12
With Mr. Alphin, prior to his
When you told Mr. Thain that you wanted
13
to get the number lower -- I know that you said you
14
didn't have a specific number in mind -- but was
15
there a range?
16
couple of million?
17
time?
18
A.
Did you want to take it down a What were you thinking at the
I just thought that, again, based on the
19
financial performance, that we should continue to
20
look for opportunities to bring that number down.
21
I did not have a firm number in my head or even
22
give him one.
23
the things I said is, comparable positions at Bank
24
of America will be getting paid much less, and
25
without going into name specific or anything, just
But as we talked about that, one of
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 61 A. Smith
1 2
to say I think it would be wise to use this process
3
as a way to get Merrill Lynch pay more aligned to
4
Bank of America.
5
Q.
What was his reaction to that?
6
A.
He generally thought that was a good
7
idea, and at the same time wanted to be fair to the
8
Merrill Lynch associates.
9
Q.
Can you expand on that little bit?
10
A.
For example, I recall using an example
11
of someone in a role at Merrill Lynch that got paid
12
three dollars, and that same role in Bank of
13
America would have gotten paid one dollar.
14
in order to -- as part of our going forward
15
integration, that I thought it would be wise to
16
begin to bring pay down, so that ongoing
17
expectation could be more in line when we reset
18
what pay levels would be than having a giant gap
19
between what they had been paid and what I thought
20
the new pay schedule could look like in Bank of
21
America.
22 23 24 25
Q.
So that
Were those conversations ongoing after
the November 11 and 12 time frame? A.
Yes.
That's really when they started in
earnest.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 67 A. Smith
1 2
attended the shareholder meeting on December
3
5th. MR. MARKOWITZ:
4
Again, could you explain
5
a little more what these particular meetings
6
were that week? THE WITNESS:
7
That week, as I recall,
8
the Merrill Lynch team was going through
9
their final recommendations of year-end
10
incentives, and I had told John that I
11
thought it would be a good idea -- because I
12
did the examples that I just gave you,
13
different roles and potential price points,
14
and he agreed that that would be a good idea.
15
So that week I met with Greg Fleming, and,
16
again, I didn't know the Merrill Lynch
17
people, but I just used illustrative
18
positions and pay to say you know these
19
people; you've been running this business.
20
Let me try to give you some context of what
21
similar roles would be paid at Bank of
22
America.
23
sat down with Peter Kraus who showed me sort
24
of -- with Michael Ross -- here were the
25
pools.
I did that with Greg Fleming.
I
And during that week, Mr. Thain asked
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Page 68 A. Smith
1 2
Mr. Fleming to take down his pool under $100
3
million.
4
Q.
5 6
Did you learn that from Mr. Thain or
through Mr. Fleming? A.
I learned that from Mr. Kraus who told
7
me Mr. Thain was trying to get in touch with Mr.
8
Fleming, and I, in fact, was going to Mr. Fleming's
9
office to do the review I just described.
So Mr.
10
Kraus told me Mr. Thain had not connected with Mr.
11
Fleming.
12
Mr. Thain is calling?"
13
Fleming Mr. Thain is calling, "and the reason he's
14
calling you is to actually bring your pool down
15
under $100 million."
16 17 18 19 20
He said, "Would you mind just telling him I did, in fact, tell Mr.
MR. MARKOWITZ:
Did you have any
understanding as to why Mr. Thain did that? THE WITNESS:
No.
Because I did not
talk to Mr. Thain at that point. MR. MARKOWITZ:
When you were meeting
21
with these various executives and giving them
22
the feel for different types of people,
23
different types of positions at Bank of
24
America, were they reciprocating and saying,
25
Okay, if this type of banker at Bank of
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Page 86 A. Smith
1 2
specific day. MR. MARKOWITZ:
3
Did you come to learn
4
that anyone at Bank of America considered or
5
contemplated that the Merrill Lynch bonus
6
pool should be further reduced in light of
7
the fourth quarter losses at Merrill?
8
THE WITNESS:
9
MR. MARKOWITZ:
I don't know. Would there be anyone
10
besides yourself and Mr. Alphin who would
11
have been the people to have those
12
conversations?
13
THE WITNESS:
14
MR. MARKOWITZ:
Not to my knowledge. Was anything put in
15
place with respect to the bonuses -- well,
16
let's see how the quarter is going, so we can
17
appropriately set the year-end bonuses? THE WITNESS:
18 19 20
I'm sorry.
At Merrill
Lynch. MR. MARKOWITZ:
Well, with respect to
21
your role in the Merrill Lynch bonus
22
allocation, did you ever say, Hey, we should
23
set up something so we can take a look at
24
what Q4 looks like to make sure we got the
25
year bonuses right?
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit G
------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
------------------------------------------------------
EXAMINATION OF JOHN D. FINNIGAN, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 3, 2009 at 10:00 a.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 39 J.D. Finnigan
1 2
determination at a board meeting in the middle of
3
January and pay out sometime thereafter.
4 5 6
Q.
Why would it be in January?
Why
wouldn't it be in the previous year? A.
Because Merrill traditionally determined
7
bonuses and paid them out after their calendar year
8
results were available.
9 10 11 12 13
Q.
Is that to get a better understanding of
the firm's financial performance? A.
It seemed consistent with the fact that
bonuses are based on calendar year performance. Q.
You mentioned a few seconds ago some
14
sleuthing around in trying to get compensation.
15
Can you just elaborate on what --
16
A.
Our HR people would see what they could
17
find out from other HR people and see what they can
18
find out from their executive compensation
19
consultants.
20
stock award was and come up with some estimate of
21
where they thought the people
22
wasn't 100 percent precise.
23
performance of the firm was versus the prior year.
24
There were always rumors on the Street about --
25
Q.
They would take a look at what the
would come out.
It
You also knew what the
Rumors on the Street about what?
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Page 50 J.D. Finnigan
1 2 3 4
Q.
So when did John Thain come to you and
ask you to move up the bonus payments? A.
We had a meeting of the management
5
Compensation Committee on November 11.
6
a timetable of how we would pay bonuses for the
7
year in view of what he anticipated to be a
8
year-end merger.
9 10 11
Q.
He set out
And what was your reaction to Mr.
Thain's proposal? A.
As a practical matter, if we were going
12
to close at year end and the committee was going to
13
make the determinations, then the committee had to
14
make the determinations in December.
15
Q.
Was there any resistance by you or any
16
other members of the committee paying out before
17
the end of the year?
18 19
A.
No.
I don't remember any.
MR. MARKOWITZ:
Was it your
20
understanding that Merrill Lynch had an
21
obligation to finalize its bonus payments
22
before the merger was completed?
23
THE WITNESS:
My understanding was the
24
merger agreement provided for Merrill Lynch
25
to award bonuses in 2008, so it was Merrill
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Page 52 J.D. Finnigan
1 2
company.
3
Q.
What else happened on this November
4
11th -- was it a call with the Compensation
5
Committee and with Mr.
Thain?
6
A.
Yes, it was.
7
Q.
Was it a scheduled meeting?
8
A.
No.
9
I think the original intent of the
meeting was for Rosemary Berkery, general counsel,
10
to bring the committee up to speed on the request
11
from your office and Congressman Waxman on what had
12
occurred, and John then suggested while we're
13
having the meeting that he'd like to add to the
14
meeting an agenda or two.
15
and two was he brought us up to date on the
16
proposed bonus accruals for the year.
17 18 19
Q.
One was the timetable,
Do you recall what the proposed accruals
were at that time? A.
From reading the document it looks like
20
they were about what they were on December 8, the
21
final accrual numbers.
22
Q.
Who's Rosemary Berkery again?
23
A.
General counsel.
24
Q.
And what do you recall that she
25
mentioned regarding --
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Page 159 J.D. Finnigan
1 Q.
2
Mr. Finnigan, a few minutes ago you
3
referenced in regard to TARP money a line of
4
credit.
5
A.
Could you elaborate on that for a moment? I'm not an expert on this.
We reserved
6
the right to access $10 billion of TARP money in
7
case the deal didn't go through.
We never received
8
any money, and we never took it.
I think Bank of
9
America ultimately took our allocation.
10
expert on TARP.
11
end.
12 13 14
Q.
I'm not an
We didn't get any money in the
But you had access to it; is that
correct? A.
I think it was provided to us in terms
15
of the commitment.
16
to take it, but we did reserve the right to $10
17
billion in case -- I don't think we caveated the
18
reservation this way, but in case something
19
happened to the deal we didn't want to give it up.
20
Again, that's an exact recollection of what
21
happened.
22
Q.
I think that we never intended
Were there any discussions or board
23
meetings about accessing the line of credit between
24
October to the end of the year?
25
A.
No.
I think every intention was, I
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit H
-----------------------------------------------------------------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-----------------------------------------------------------------------------------------------------------------
CONTINUING
EXAMINATION of STEELE ALPHIN, taken
at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 4, 2009 at 11:00 a.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 28 S. Alphin
1 2
company, and then we would look at how we retain
3
those people through compensation or other ways,
4
and that's going to be compensation to even
5
guarantees -- which we didn't do, but that's done
6
in the industry.
7
Q.
Just discussing for a moment with regard
8
to the aggregate bonus pool, let's talk about the
9
segment of the discretionary portion of that pool.
10
What was your understanding of what you and Andrea
11
Smith could do in that regard in your discussions
12
with Merrill Lynch?
13
A.
Zero.
They could spend all of it.
14
Q.
That was your understanding, that you
15
were not permitted to make any suggestions or
16
recommendations?
17
A.
We can't.
18
Q.
What was your understanding of the right
19 20
to confer coming out of the merger agreement? A.
That I can consult, advise and discuss,
21
but, ultimately, John Thain and his directors had
22
full authority to pay any monies that would be paid
23
for the performance.
24 25
MR. MARKOWITZ:
Could you tell Mr. Thain
-- did you think you were able to tell Mr.
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Page 71 S. Alphin
1 2
leader would.
I think that's a normal
3
leadership trait.
4
normal for a person to think that in that
5
manner. MR. LAWSKY:
6
I think that would be very
Since you raised it, let's
7
talk about Mr. Thain's own bonus for himself.
8
I know, and we think you'll agree, it's an
9
evolving process over several months.
10
maybe you tell us, as you recall that
11
evolution, the first time you have a
12
REDACTED
discussion with him.
So
At one point it was
13
then it's
, then it's
.
14
take us, your best recollection, from the
15
beginning of your hearing about his desire
16
for a bonus for himself.
17
THE WITNESS:
Why don't you
If you give me latitude
18
about specific dates because, as I mentioned
19
before, this was an ongoing dialogue that I
20
would have with John about this issue.
21
MR. LAWSKY:
And to the extent you can,
22
if you can even ballpark it for us, it would
23
be helpful.
24 25
THE WITNESS:
,
That's fair.
The first
time I ever met with John, we talked about
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Page 72 S. Alphin
1 2
compensation -- which would have been very
3
soon after the actual deal -- and the
4
conversation then was around no one has a
5
change of control agreement; that's good.
6
What are your expectations; what are your
7
thoughts on Greg Fleming, Bob McCann and
8
others? MR. LAWSKY:
9 10
Who was saying that, you or
Thain? THE WITNESS:
11
I'm asking John that.
12
these are key people, how do we keep them
13
here?
14
talked about Fleming, McCann, and then John
15
said, And myself, I would expect to be paid
16
-- the exact comment was this:
17
going to pay me somewhere around
18
this year," and my comment was
If
And then, during that dialogue, we
" and then it was
"My board is
REDACTED REDACTED
REDACTED
That led into the
22
conversation of, "John, going forward in our
23
company, that's not the type of pay you
24
should expect if you want to consider a role,
25
that's not what it's going to be; that's not
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 73 S. Alphin
1 2
our philosophy paying" -MR. LAWSKY:
3 4
Was this all in the first
conversation? THE WITNESS:
5
Yes.
This was a long
6
conversation in his office.
I'll try to
7
change when I go to the next conversation.
8
said, "That's not our philosophy, and we
9
won't do that."
I
The comment to me was,
10
"Well, I really think I'm worth that; I think
11
I've done exactly what my board asked me to
12
do.
13
I have delivered a $29-or-so stock price to
14
the shareholder.
15
firmly believe that John believes that; in
16
his mind he believes that's what he did.
17
said, "I can't make that decision; that's not
18
my decision to make.
19
going forward that's not the type of
20
compensation your going to see if you want to
21
be part of Bank of America, particularly next
22
year which is probably going to be a very
23
difficult year."
I tried to clean up problems there, and
I've done my job."
I
I
But I can tell you,
I said,
REDACTED
REDACTED -- just as a
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Page 105 S. Alphin
1 2
Andrea Smith communicate to you that she had
3
been telling John Thain about the timing? THE WITNESS:
4
She really didn't because
5
she communicated to me she and John were
6
continuing to have dialogue about taking the
7
gross amount down, but we did not talk
8
anymore about the changing of the timing.
9
considered that a decision made; the decision
10
was not ours; it was within the boundaries of
11
the agreement, and our only approach there
12
was let's make sure we try to get the amount
13
paid looked at critically or as hard as we
14
could.
15
That's what we did. MR. MARKOWITZ:
Did you ever let Mr.
16
Thain know that you're unhappy with this
17
decision with respect to timing?
18
We
THE WITNESS:
I expressed my concern of
19
what was going on, and I said, "I think these
20
things, if we do this, this will force us to
21
deal with some of these issues."
22
MR. MARKOWITZ:
I want to switch back
23
gears a little bit and ask about some of the
24
conversations we had earlier about Mr. Thain
25
seeking a bonus for himself.
Did there come
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 106 S. Alphin
1 2
a time when you told Mr. Thain that if he
3
were to seek a bonus for himself then he
4
wouldn't be in line or be considered to
5
succeed Ken Lewis?
6
THE WITNESS:
I told John that if he
7
were paid more than Ken, that our board would
8
clearly look at it as an aberration, and that
9
he should be aware of that and have a sense
10
of -- I told him, I said, "John, you have
11
public problems -- you already see that --
12
and this could potentially create a problem
13
with our board." MR. MARKOWITZ:
14
Understood.
But did you
15
go the next step and say, If you do this
16
there would be no chance of you to be able to
17
succeed Ken Lewis at Bank of America? THE WITNESS:
18 19 20
I don't recall telling him
that. MR. MARKOWITZ:
How about some other
21
kind of consequence, like there wouldn't be a
22
future for you at Bank of America?
23
THE WITNESS:
No.
Because, at that
24
point, I still thought there was a future for
25
John in the bank.
What I expressed to John
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Page 107 S. Alphin
1 2
was that our board would view that he had a
3
bigger divide to go over to become more of a
4
commercial -- having a commercial view on
5
compensation.
6
company we don't pay people for the merger.
7
Ken's never been paid for a merger the year
8
it's done or in advance.
9
you would be paid when this is successful,
10
Because I told John, "In our
So in our company
when the shareholder benefits from it." MR. MARKOWITZ:
11
Is this the strongest on
12
any of these issues that you pushed back,
13
sort of the statement along the lines if you
14
end up getting paid more than Lewis it's
15
going to be viewed as an aberration by the
16
board?
17
THE WITNESS:
18
MR. MARKOWITZ:
Yes. Did you ever consider
19
kind of taking that approach with respect to
20
the timing issue?
21
THE WITNESS:
I didn't because that was
22
a decision that was made by the board within
23
the legal parameters of the agreement.
24
was more simply advice that I was trying to
25
offer him as his HR executive.
This
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some point prior to October 31.
3
MR. LAWSKY:
4
THE WITNESS:
5
MR. LAWSKY:
6
That's the conversation
THE WITNESS:
That's correct.
That's
just a retention conversation at that point. MR. LIMAN:
9 10
Yes.
where you bring the retention?
7 8
Right around there.
That's the conversation
where it's off the table.
11
THE WITNESS:
12
MR. LIMAN:
Yes. Prior to October 31, at some
13
point proximate to but prior to.
14
Q.
Did you ever discuss with John Thain
15
incentive compensation with regard to individual
16
employees?
17
A.
He did dialogue with me about what he
REDACTED
was thinking about
19
They were the only two -- oh, excuse me, and
20 21 22
REDACTED Q.
and
REDACTED .
18
.
And when was the initial discussion with
Mr. Thain in this regard?
23
A.
That would have been in November.
24
Q.
And those discussions continued through
25
the early part of December, as well?
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Page 118 S. Alphin
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A.
They did until there were some form of
3
recommendations, or until their board decided not
4
to pay John and the other executives.
5
Q.
6
discussions.
7
was it at that point that Mr. Thain raised
In terms of the initial discussion,
REDACTED
8
11
And if you can take us through those
A.
What John expressed to me was what they
12
had been paid in previous years, and they were
13
important; we needed to retain both of them at that
14
point, and that we had to be somewhere close to
15
that, he felt like, to keep them on the team going
16
forward.
17
Q.
When you're saying
--
REDACTED
18 19 20 21 22 23 24 25
Q.
Do you recall -- strike that.
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1
What were the figures that Mr. Thain was
2 3
discussing with regard to Mr. Fleming an Mr.
4
McCann?
5
A.
6
REDACTED
7
number.
8
Q.
9
In the
REDACTED
--
REDACTED
-- we never talked about a specific
Did you discuss any other individual
employees in terms of their bonuses with Mr. Thain?
10
A.
I didn't.
11
Q.
Do you know if Andrea Smith did?
12
A.
I do not know as a fact if she did or
13
to
she didn't. Q.
14
When you say "as a fact," do you
15
generally have a sense of whether or not Andrea
16
Smith did have that discussion? A.
17
I believe that in the role I asked her
18
to fulfill, yes, they would have had dialogue about
19
that.
20 21 22 23 24 25
Q.
Did you ever ask Andrea Smith whether or
not she had dialogue -A.
No. MR. LAWSKY:
When you talk about the
REDACTED
, did you know
it then and you don't recall it, or you never
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Page 128 S. Alphin
1 2
at.
I looked at monthly and quarterly
3
forecasts.
4
the forecast for the fourth quarter was
5
supposed to be.
6
information I have would have been a general
7
dialogue from Andrea or from people in the
8
business.
9
going what the marks were and what the trade
At Merrill Lynch I only saw what
So really the only
But looking at a document and
10
losses were, I don't receive those documents;
11
I don't look at them. MR. LAWSKY:
12
Did you ever hear in
13
December of any particular positions that
14
Merrill had that created particular problems
15
within Merrill's financial health in
16
mid-December? THE WITNESS:
17
I did not hear of a
18
specific mark or a specific trade or a
19
specific piece of business. MR. MARKOWITZ:
20
No, I did not.
Did you ever learn
21
during the fourth quarter in December that
22
things started to worsen? THE WITNESS:
23
I did.
A few days before
24
our December discussion with our board about
25
the
REDACTED
, Ken expressed to me
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Page 129 S. Alphin
1 2
that the numbers were deteriorating faster
3
than he'd ever seen, and he said they've gone
4
much past the $8 billion to $9 billion in
5
losses.
6
mid-teens. MR. MARKOWITZ:
7 8
At that point, they were in the
So you learned about it
from Ken Lewis? THE WITNESS:
9 10
MR. MARKOWITZ:
12
THE WITNESS:
13
MR. MARKOWITZ:
15
THE WITNESS:
Yes.
REDACTED
Yes.
REDACTED
A day or two before we had
16
that phone call, that fourth phone call.
17
Part of the challenge is, we have a board
18
call every Friday -- we had for several
19
months -- what are the conditions of the
20
market place.
21
would have been in the December -- soon after
22
it.
23
really started after the second week.
24 25
That's the challenge.
But it
It would have been -- deterioration
MR. MARKOWITZ:
How did you learn about
the MAC?
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Page 139 S. Alphin
1
MR. MARKOWITZ:
2 3
if I understand, reports to you.
4
THE WITNESS:
5
MR. MARKOWITZ:
6
9
That's correct. Is there a particular
person in HR whose role that would be? THE WITNESS:
7 8
But the Comp function,
Mark Behnke runs that for
us. MR. MARKOWITZ:
Do you have an
10
understanding of how or whether when bringing
11
over talent from a competitor firm if Bank of
12
America gets information about what they were
13
making at the competitor firm?
14
THE WITNESS:
Yes, we do.
We ask --
15
sometimes we ask for the last year's W-2 --
16
and we have some sense of the market because
17
in this role, like all financial services,
18
there is some sense of what MDs would make;
19
associates would make; VPs would make;
20
bankers would make.
21
specific than that -- and, typically, we ask.
22 23 24 25
We try to get much more
MR. MARKOWITZ:
And do people typically
give it when you ask? THE WITNESS:
Interestingly enough, most
of them do.
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Page 140 S. Alphin
1
MR. MARKOWITZ:
2
With respect to your
3
sense of the market, how do you get a sense
4
of what the market is worth? THE WITNESS:
5
From people we lose who go
6
to a competitor at certain rate of pay and
7
whatever instruments to hook or retain them,
8
and also the intelligence we get just from
9
the various comp analysis we do on an annual
10
basis.
11
lot from head hunters also.
12
firms can tell you that these are the things
13
that are occurring. MR. MARKOWITZ:
14 15
Those are the two primary.
THE WITNESS:
17
MR. MARKOWITZ:
19
The head-hunting
And do you have direct
contact with those?
16
18
You get a
Personally, I do not. Would that be Mark, as
well? THE WITNESS:
Most of that would be Mark
20
Behnke and Rick Parsons, who runs our
21
recruiting function for the company.
22
MR. MARKOWITZ:
When people leave and
23
they decide to go elsewhere, do they share
24
with you what their new comp structure is?
25
THE WITNESS:
Some do.
We like to have
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Page 164 S. Alphin
1 2
judgment that he thought was the best way to
3
uphold.
4 5 6
MR. MARKOWITZ:
How much in losses would
it cause you to decide to lower the pool? THE WITNESS:
I don't know how to answer
7
that question because my overriding the
8
position would always be this:
9
all the people the losses will be even
If you lose
10
greater.
11
they're being managed, but if you lose the
12
people the losses would be greater.
13
have to turn around and hire people and
14
probably hire them with a guarantee, so the
15
costs to the company would have been even
16
greater.
17
No matter what they are at least
MR. MARKOWITZ:
Then you
So you would have gone
18
with the Merrill Lynch I bank offer over the
19
Bank of America model after post merger.
20
THE WITNESS:
I would have used that to
21
get to one company, yes.
22
company and managing the company the way we
23
manage it, we would ultimately end up with a
24
Bank of America approach as transition, as I
25
mentioned earlier today.
But after one
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Page 165 S. Alphin
1
MR. MARKOWITZ:
2 3
in 2008 numbers or the next year? THE WITNESS:
4 5
Would that have occurred
Forward looking, '09 and
'10. MR. MARKOWITZ:
6
Is there a threshold of
7
when that crosses, when the numbers have to
8
be reflected regardless of the desire to keep
9
people? THE WITNESS:
10
Even in our company we
11
missed our numbers, but we still paid our
12
best performers in key roles; we still paid
13
them.
14
think in this industry, you always have to
15
pay people to retain them as long as there
16
are options to do other things.
17
what we're seeing today.
18
I think in the marketplace, and I
MR. MARKOWITZ:
And that's
It sounds to me like
19
there's a difference between zero, which is
20
what the top five execs took and whatever
21
bonuses people were doled out, and a number
22
between zero or somewhere between zero and
23
what they got.
24
numbers have caused you post close would
25
additional losses to try to further reduce
The question is, would the
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit I
--------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
--------------------------------------------------------
GREG FLEMING, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 5, 2009 at 12:00 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 67 G. Fleming
1 2
there was that it would be no bigger than 2007, and
3
that would be the ceiling, and Bank of America
4
would have -- we would run the process, and they
5
would consult with us but would be actively
6
involved, and the color was they were going to be a
7
significant part of this, but we would run it.
8
Q.
This is you and Curl?
9
A.
Me and Curl.
10
Q.
Who else is in the room for that
11 12
discussion? A.
I think the only people in the room for
13
price, retention payments for FA's and for bonuses
14
are Curl and me. MR. POLKES: It's reflected in the deal
15 16
docs.
17
Q.
On this point, when you discussed the
18
pool over this weekend was there a discussion of
19
the timing of either setting the bonuses or paying
20
out the bonuses?
21
A.
No.
Dave, you have to remember, Sunday
22
afternoon I was on fumes.
23
major issues only.
24
timing.
25
Q.
We were dealing with
So I recall no discussion on
Are those the three points:
Price,
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit N
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
CONTINUING
EXAMINATION of JOHN ALEXANDER THAIN,
taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 24, 2009 at 4:30 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 202 J. A. Thain
1 2
A.
Morgan Stanley.
3
Q.
Who initiated the recruitment of
4 5 6 7 8
REDACTED A. contact. Q.
At what point did it sort of get to your
level?
9
A.
10
coming.
11
Q.
12
I don't remember who made the first
When she was seriously considering
At the point it got to your level, had
there been a salary offer made to
REDACTED
13
A.
I don't remember.
14
Q.
Did you participate in the negotiation
15
of the salary for
REDACTED
16
A.
I don't recall specifically.
17
Q.
In those conversations, did
18 19 20 21 22 23 24 25
REDACTED
disclose what she had been making? A.
She would have disclosed that to our HR
area prior to making an offer. Q.
And what is the purpose of that?
Why
would she tell your HR what she was making? A.
So that we can gauge how our offer
compared to what she was currently being paid. Q.
Is there any aspect of that with respect
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Page 216 J. A. Thain
1 Q.
2
So if Morgan Stanley recruited -- before
3
we used the example of you recruiting someone from
4
Morgan Stanley.
5
you were there, was trying to recruit one of your
6
guys, and they say "How much are you making?"
7
they say, "I was making ten dollars."
8
be a problem with Merrill Lynch? A.
9 10
Let's say Morgan Stanley, while
I said I don't remember.
And
Would that
I don't know
if that's part of the policy or not. Q.
11
But you have an understanding that
12
that's what happens in the industry routinely,
13
correct, that people do disclose that?
14
A.
Yes.
15
Q.
I guess I'm curious, if it's such
16
proprietary information, why wouldn't there be
17
policies set in place at Merrill Lynch prohibiting
18
employees from disclosing information? A.
There might be.
21
Q.
Who would know?
22
A.
Either the Legal Department or the HR
19 20
23 24 25
I just said I don't
know.
Department. Q.
But even if there was one, it sounds
like no one would be enforcing it; is that right?
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Page 217 J. A. Thain
1 2
A.
I don't think that's necessarily true.
3
Q.
Are you aware of any time when someone
4
left, and there was a discussion of "Oh, they told
5
our Competitor X what they made, so we're going to
6
sue them under some provision"?
7 8 9
A.
I'm not aware of any such circumstances. MR. CORNGOLD:
You've been in the
industry at various levels for many years.
10
Are you aware of ever being under any rule or
11
any instruction at any of your employers
12
where you were not allowed to disclose your
13
compensation?
14
THE WITNESS:
I believe -- although I'm
15
not certain in the case of Merrill -- I
16
believe that many firms have provisions that
17
are intended to keep compensation
18
confidential.
19
MR. CORNGOLD:
I'm not asking a
20
hypothetical question; I'm asking a specific
21
question.
22
through your resume, but at any time when you
23
were not a Section 16 employee, are you aware
24
of being under any rules where you were not
25
allowed to disclose your compensation?
When you were -- we haven't gone
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Page 249 J. A. Thain
1 2
someone got such a high payout, shows up and
3
then goes off to Hawaii?
4
THE WITNESS:
5
specifically. MR. LAWSKY:
6 7
But you're saying there was
chatter somehow about this. THE WITNESS:
8 9
No one said that to me
I believe it was reported
in the press, but no one said this
10
specifically to me.
11
MR. CORNGOLD:
Just to clarify.
REDACTED , t h e i n f o r m a t i o n
12
recruiting of
13
about his pay and stock, that came from
14
REDACTED , t o y o u r k n o w l e d g e , c o r r e c t , h i s REDACTED
15
?
THE WITNESS:
16
In your
Yes.
But he would have
17
documentation that he could produce to verify
18
that.
19
MR. CORNGOLD:
And your information
20
about what comparable people were making came
21
from Towers Perrin; is that correct?
22
THE WITNESS:
I don't recall if they
23
specifically provided.
I also had general
24
information about what the top trading talent
25
make on Wall Street.
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Page 250 J. A. Thain
1
MR. CORNGOLD:
2
Was there other
3
information about his compensation at Goldman
4
that would have been useful to you that you
5
didn't have available? THE WITNESS:
6 7
that question.
10 11
Not that I know of.
(Recess was taken.)
8 9
I don't know how to answer
Q.
Could you describe the circumstances
that led to Mr. Kraus coming onboard? A.
Mr. Kraus is also a very senior, very
12
experienced person on Wall Street.
13
experience both in investment banking and in wealth
14
management, and he was brought onboard in a
15
strategy role with the expectation that he would be
16
very valuable in the wealth management and asset
17
management side of the business.
18 19 20
Q.
He has
Did you participate in setting or
discussing his salary? A.
I was part of discussing his
21
compensation package, but it was also eventually
22
approved by the Compensation Committee and the
23
board.
24
Q.
Where was he before Merrill?
25
A.
He was at Goldman Sachs.
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Page 251 J. A. Thain
1 2
Q.
What was the comp that was set for him?
3
A.
His total compensation package for 2008
4
was approximately
5 6 7
REDACTED
.
Q.
And how did you go about setting his
A.
It was a function of his prior
comp?
8
compensation levels and compensation levels for
9
comparable senior people of his experience and
10 11 12 13 14 15
ability. Q.
REDACTED
As to his
, did he
provide that to Merrill? A.
I'm not aware of what specific
documentation he provided. Q.
But did he let Merrill know, regardless
16
of what specific documentation, what he was making
17
a t REDACTED
18 19 20 21 22 23 24 25
A.
Yes. MR. LAWSKY:
Do you recall when he came
onboard? THE WITNESS:
I believe he started in
September. MR. LAWSKY:
And do you know why so late
in the year? THE WITNESS:
He also had a garden leave
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit O
------------------------------X EXECUTIVE COMPENSATION INVESTIGATION, ------------------------------X
120 Broadway New York, New York 10005 March 5, 2009 10:00 a.m.
EXAMINATION BEFORE TRIAL OF STEVE GOODMAN, the Witness herein, taken by the office of the Attorney General, pursuant to a Subpoena and held before Kimberly Dean, a Notary Public of the State of New York at the above-stated time and place.
Page 26 Steve Goodman
1 2
A.
There are compensation surveys in which
3
data is collected for a variety of companies and a
4
variety of industries and geographies.
5
date that she would be doing would be getting
6
survey data regarding HR functions at other
7
companies.
8
Q.
9 10
The survey
Do you know who that data is collected
from? A.
The data itself is collected directly
11
from the companies.
12
whoever that might be, they send surveys of their
13
own confidential to individual companies and they
14
collect the data that they get from individual
15
companies and then they compile the overall data
16
for those companies to use.
17
Q.
So, the third party vendor or
If I understand this correctly, Bank of
18
America uses a third party who collects data from
19
other companies?
20
A.
That's my understanding.
21
not a compensation expert.
22
of how it works.
23
MS. ANDREADIS:
Again, I am
That's my understanding
Do you know if Bank of
24
America supplies these third party vendors
25
with information on Bank of America's
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Page 27 Steve Goodman
1 2
compensation as well?
3
A.
Yes, I would say so.
Again but because
4
I have never done the process myself, I don't know
5
for sure but I think that's part of the price for
6
admission so to speak.
7
admission, you pay for surveys.
8
the expectation is you will participate as well.
9 10 11
Q.
It's two prices for I think part of it
Do you know the name of any companies
that Bank of America has used to collect this data? A.
I know of companies we used in the past
12
but I would not want to guess the companies we are
13
using in the last year or two or three because it
14
may have changed.
15 16 17 18 19 20 21
Q.
The companies that you know of, when
were they last used? A.
That's what I'm saying.
I don't know
exactly when. Q.
What are the names of the companies you
are aware of? A.
If I think of a traditional compensation
22
companies, they are companies like McLoggin, Mercer
23
Consulting.
24
those were who we were using.
25
name the top accounting firms I could give you the
Again, to be honest, I don't know if If you asked me to
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Page 29 Steve Goodman
1 2 3
range or how is it presented? A.
Generally, by the time I have been
4
provided with information for my compensation
5
partner they have taken all sorts of data and
6
boiled it down into a summary that I can
7
understand.
8 9
In terms of the exact format that they get it in, I am not familiar.
In terms of in general, how
10
it could be boiled down for me?
11
be on job levels and ranges, yes.
12 13 14
Q.
It usually would
When you say job levels, is that just a
title or is it more with a description of the job? A.
It's pretty generic and that's the hard
15
part of using surveys, matching your job to the
16
survey.
17
specific to your kind of job code system.
18
to say, okay, if this company provides this survey
19
data for this job function, which of our jobs apply
20
to that.
21
these companies.
22 23
No survey will have data that's exactly We have
So it's pretty generic what you get from
CONT'D EXAMINATION BY PAMELA MAHON, ESQ. Q.
With regard to compensation, is
24
compensation included in this survey date that you
25
describe d?
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 30 Steve Goodman
1 2
A.
Yes.
3
Q.
In terms of compensation what level of
4 5
details is provided in these surveys? A.
Usually, in surveys, again, I'm seeing
6
it after the survey, so, at some point a
7
compensation expert will do a much better job of
8
explaining the output that's coming from the
9
consulting company.
By the time I look at it,
10
generally what I am looking at is what is the
11
median pay for a set of jobs.
12
percentile and the 75th percentile.
13
aspects.
14
Q.
What is the 25% Those sorts of
Have you ever received in it's original
15
form or based on the summary or analysis by
16
compensation experts at Bank of America, have you
17
ever received a survey data?
18
A.
I have reviewed survey data after it's
19
been boiled down to put into my terms.
20
once someone tried to show me something they got
21
from a consulting firm and because I'm not an
22
expert in statistics and regressions, it was too
23
much for me.
24
boiled down into something that's usable.
25
Q.
I remember
In all honesty, it always has to be
Who does the boiling down?
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Page 66 Steve Goodman
1 2 3
policies? A.
In a general level that there are too
4
many policies to remember them all.
5
refer to experts if I want to specificity around a
6
policy.
7
Q.
Certainly I
For example, this is a hypothetical, you
8
were considering terminating someone's employment
9
and you wanted to look up a specific provision, how
10 11
would you go about doing that? A.
I would call one of the centers of
12
expertise which specialize in employee relations
13
type of issues and I seek advise from that area.
14
Q.
Do you know if Bank of America has a
15
policy that requires it's employees to keep it's
16
compensation confidential?
17
A.
I can't site the specific policy.
I
18
would say that customer information and associate
19
information are considered sacred, literally.
20
There's significant instruction around both
21
customer and associate data privacy.
22
Q.
What is that significant information?
23
A.
That it can not be shared.
24
Q.
What documents are you referring to?
25
MR.CHEN:
You mean what kind
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Page 67 Steve Goodman
1 2
information is kept confidential or what
3
document is the policy contained in?
4
Q.
Both, well, my understanding from your
5
testimony is that associate information is sacred
6
as you said and I'm asking you were where in the
7
Bank of America policy is that a policy?
8 9
A.
It's laid out and there are compliance
training that we are required to take periodically
10
and as part of that compliance training there are
11
specific instructions around not providing
12
confidential data of any sort, customer or
13
associate.
14
Q.
The compliance training centers around
15
Bank of America policies, is that fair to say, you
16
are not going to have compliance training for not a
17
non-enforceable event.
18
specifically states that employee information
19
relating to compensation has to be confidential?
20 21 22 23
A.
Is there somewhere where it
I'm confident it's somewhere.
I can't
tell you exactly where. CONT'D EXAMINATION BY PAMELA MAHON, ESQ. Q.
The compliance training that you just
24
referred to, that's training for Bank of America
25
employees to not divulge another employees
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Page 69 Steve Goodman
1 2 3
CONT'D EXAMINATION BY VICKI ANDREADIS, ESQ. Q.
Do you know if Bank of America requires
4
it's employees to sign A confidentiality agreement
5
or any type of agreement with respect to keeping
6
their own compensation information confidential?
7
A.
I don't recall.
8
Q.
Have you ever instructed anyone at Bank
9 10
of America to keep their compensation information confidential?
11
A.
In 23 years?
12
Q.
Sure?
13
A.
I don't recall that I ever specifically
14
told an individual they could not share their own
15
information with someone else.
16
Q.
Do you know if Bank of America has ever
17
terminated anyone for disclosing their own
18
confidential compensation information?
19
A.
I don't know the answer to that.
20
Q.
Have you ever had to terminate someone
21 22 23 24 25
on that basis for disclosing their own? A.
I never terminated anybody for that
reason, personally. MS. MAHON:
In terms of not being
aware someone has been terminated for
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Page 70 Steve Goodman
1 2
revealing their own compensation
3
information, have you been made aware that
4
anybody has been terminated for that reason?
5
A.
No.
6
Q.
Mr. Goodman, do you participate in
7
No one made me aware of that.
recruiting people, HR executives?
8
A.
Yes.
9
Q.
Tell us a little bit about that process,
10 11
what goes into the recruitment process? A.
A lot.
First we identify what our need
12
is and we identify what skills and capabilities we
13
are looking for and then we will generally look
14
internally first to see if there is anyone capable
15
of moving.
16
to fill those roles.
17 18 19
Q.
If not, we go externally in the market
Let's talk about going externally, how
is that search done? A.
Many different ways.
Sometimes we do
20
searches through the Internet using various web
21
sites where people put resumes on the Internet.
22
Sometimes we will do different advertisements into
23
trade publications and we do a lot of networking
24
and talk to people who know people in various
25
companies and know people highly thought of and we
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Page 87 Steve Goodman
1 2
Q.
Have you ever had an employee advice you
3
that the reason they are leaving is to go make more
4
money somewhere else?
5
A.
Yes.
6
Q.
Have you asked that employee how much
7
money they are going to be making at other
8
companies or firms?
9
A.
I don't recall asking that question.
10
Q.
Have you ever had a discussion about the
11
compensation in hopes to perhaps match that
12
compensation?
13
A.
Going through 23 years here.
I don't
14
recall a specific conversation one way or the
15
other.
16
Q.
I don't recall a specific conversation. Do you recall any conversation when an
17
employee told you they were leaving to make more
18
money someplace else?
19 20 21
A.
I don't recall a specific conversation
but if I'm sure there was some dialogue after that. Q.
I will give you a hypothetical, tomorrow
22
you are conducting an exit interview for an
23
employee that has just resigned, during that
24
interview the employee tells you I'm leaving to go
25
to firm X to make more money, would you feel
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Page 88 Steve Goodman
1 2
comfortable during that discussion to ask the
3
employee what are you going to be making at firm X
4
or perhaps you want to see if you can match that
5
compensation and that is an employee you wanted to
6
keep?
7 8
A.
Asking me my particular practice for
that I would generally not ask that question.
9
Q.
Why would that be?
10
A.
People generally stay at companies where
11
they feel they can get the greatest amount of
12
growth and development in their career.
13
somebody chooses to leave a company at that time
14
I'm assuming they believe they can have a better
15
career somewhere else.
16
Q.
If
Your hesitation to ask such a question
17
is not based on Bank of America's policy that you
18
are not permitted to ask but it's your own personal
19
belief as to reason this person is leaving?
20 21 22 23 24 25
A.
I had not thought of it in terms of a
policy. Q.
Have you ever been advised you can't ask
an employee during an exit interview or discussion? A.
No. MS. ANDREADIS:
Mr. Goodman thank you
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Exhibit X
---------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
---------------------------------------------------
NEIL COTTY, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 4, 2009 at 5:00 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 122 N. Cotty
1 2
get."
That's it.
3
Q.
And did she have any further response?
4
A.
Other than that's the decision that was
5
made by Merrill Lynch. Q.
6 7
that they're going to get paid? A.
8 9
What's the implication about the fact
Bank of America awards bonuses in
January, and, therefore, you get people working 150
10
percent during the holiday season when a lot of
11
people want to go skiing and take off.
12
bonuses in the envelope was in hand, a lot of them
13
might have said, Jeez, I don't need this stuff any
14
wore.
15
bonus when I needed them at the most critical time.
16
So I was outraged.
17 18 19
I'm out of here.
Q.
So if the
So they were awarded their
Did you talk to anyone at Bank of
America about your outrage? A.
I might have mentioned it to Bob Qutob,
20
who was on the transition team, to know what he
21
heard, and he confirmed it.
22
about it?
23 24 25
Q.
Did I talk to Joe
No. Did you express your concern about this
to anyone? A.
Bob, Wendy.
That's it.
No one else
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----------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
----------------------------------------------------------
EXAMINATION of JOHN ALEXANDER THAIN, taken at the Office of the New York State Attorney General, 120 Broadway, New York, New York, on February 19, 2009 at 10:10 a.m., pursuant to a Subpoena, before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 7 J. A. Thain
1 2
billion and $25 billion.
The structures that we're
3
being talked about in terms of the potential rescue
4
of Lehman posed significant difficulties, and we
5
were aware that Lehman was talking to at least two
6
potential acquirers, Bank of America and Barclays. Mid-morning on Saturday, I became very
7 8
concerned that the combination of the potential
9
loss in the commercial mortgage portfolio, and the
10
complications of putting any type of rescue
11
together without any form of government assistance
12
made it likely that Lehman would not, in fact, be
13
rescued; that it would fail.
14
concerned about the impact a Lehman failure would
15
have on the market generally upon all the financial
16
institutions, but, in particular, on Merrill Lynch.
17
Q.
And I was very
That would be a good place just to ask
18
you to focus a little more on what occurred on
19
Saturday morning that heightened your concern then
20
that led you to think that Lehman might fail.
21
A.
It was a combination of the fact that
22
the size of the loss was of a magnitude that it was
23
going to be difficult to put together a rescue
24
package, and the structures that could possibly do
25
that were very difficult to put together with that
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Page 8 J. A. Thain
1 2
group.
If you go back to long-term capital -- and
3
I was part of the group that put that rescue
4
package together -- that was $4 billion, and that
5
was difficult enough.
6
together, whether it's $15 billion or $25 billion,
7
and making that actually happen in a relatively
8
short period of time, it was my personal assessment
9
that that was very unlikely.
The idea of putting
And the combination
10
of Tim Geithner, Hank Paulson and Chris Cox,
11
continued to maintain that the government was not
12
going to provide any form of assistance, so I felt
13
that I needed to give Merrill Lynch alternatives in
14
the event of a Lehman bankruptcy.
15
placed a phone call to Ken Lewis saying that we
16
would like to engage in a conversation about a
17
strategic transaction, and he said "Fine" -- he
18
was, I believe, at his home in Charlotte -- and he
19
said, "I can be there mid-afternoon," and we agreed
20
to meet at 2:30 on Saturday afternoon at their
21
corporate apartment in Time Warner.
22
Q.
So mid-morning I
Before we go into the conversation with
23
Mr. Lewis, could you just go through a little bit
24
on what your thinking was, at the time, about the
25
impact a Lehman failure would have on Merrill?
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Page 9 J. A. Thain
1 A.
2
It's always a little bit difficult to
3
remember exactly what your thinking was on a
4
particular day because many things had transpired
5
since then, and, of course, I now know what the
6
real impact was of the Lehman failure, but my best
7
recollection of Saturday was that because of the
8
problem assets on Merrill's balance sheet and
9
because of the funding requirements on Merrill's
10
balance sheet, that the likely impact of a Lehman
11
bankruptcy would focus on Merrill next as opposed
12
to Morgan Stanley or Goldman Sachs, and that we
13
would likely have very serious funding problems
14
beginning Monday morning. Q.
15
And if you could flush that out a little
16
bit.
17
would they lead to?
18
What would the funding problems be, and what
A.
The types of funding problems come from
19
the financing of the balance sheet, in particular,
20
the financing of less liquid assets through REPO,
21
through unsecured funding, and also the financing
22
that's provided through the prime brokerage
23
businesses.
24
up our liquidity positions, the size of liquidity
25
drains that were possible, and the inability to
Although we were continually building
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Page 10 1
J. A. Thain
2
finance positions in the REPO market, and the
3
potential withdrawal of cash out of the prime
4
broker, all of which had a significant risk of
5
causing a liquidity problem at Merrill --
6
MR. CORNGOLD:
In light of what happened
7
to Lehman, why was that a premise --
8
is, if Lehman would come up with a structure
9
to preserve Lehman, wouldn't you have the
10 11
that
same problems on Monday morning? THE WITNESS:
The problems would still
12
have been there, my best guess, but to a much
13
lesser extent.
14
in my view, caused a complete shutdown in the
15
credit markets.
16
rescued, yes, we would have had funding
17
issues, and, yes, we would have had continued
18
to focus a lot on our liquidity position --
19
which we have been really over the course of
20
the entire year -- but the failure of Lehman
21
really caused a complete unwillingness of
22
financial institutions to lend money to each
23
other, to provide financing for each other,
24
and, so whatever might have happened --
25
So the bankruptcy at Lehman,
And so if Lehman had been
MR. CORNGOLD:
And you anticipated -- I
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Page 11 J. A. Thain
1 2
mean, you're now doing the what happened as
3
opposed to what you were anticipating -- you
4
anticipated that the failure of Lehman would
5
have caused a shutdown. THE WITNESS:
6
No.
I anticipated that
7
the failure of Lehman would have caused very
8
severe problems for Merrill Lynch.
9
Q.
By the way, did you have any kind of
10
task force or similar groups set up to, in fact,
11
game out the position Merrill Lynch would have been
12
in if Lehman failed?
13
A.
We were constantly focused on our own
14
liquidity position and constantly focused on the
15
difficulties in the marketplace.
16
to that weekend, specifically gamed out what would
17
happen if Lehman would have failed.
18
MR. CORNGOLD:
We had not, prior
Did you know when you
19
called Bank of America that their transaction
20
with Lehman was dead -- or was it dead at
21
that time?
22
THE WITNESS:
23
MR. CORNGOLD:
I did not know. So wasn't your call to
24
Bank of America, wouldn't that have
25
contributed to the problem that you
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Page 13 J. A. Thain
1
MR. CORNGOLD:
2 3
when you called. THE WITNESS:
4 5
But you didn't know that
Q.
That's true.
I did not.
Did you have an assessment of how long
6
Merrill would have if it didn't do a quick marriage
7
with someone else in the event --
8
A.
In the event of a Lehman bankruptcy?
9
Well, you're asking me to predict what might have
10
happened -- which, of course, I can't necessarily
11
do -- but these type of liquidity problems become
12
critical within days.
13
example, Lehman's liquidity problems accelerated
14
very, very quickly.
15 16 17
Q.
And, in fact, Lehman, as an
So, at this point, finding a partner for
Merrill became a priority? A.
Correct. MR. CORNGOLD:
18
And -- I'm sorry -- that
19
was true whether Lehman was going to do a
20
transaction that preserved it or not, I take
21
it. THE WITNESS:
22 23 24 25
No.
I don't agree with
that. MR. CORNGOLD: theory thing.
It's sort of a game
You make this call on Saturday
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Page 18 J. A. Thain
1 2
last were, the chronology was that you had spoken
3
with Ken Lewis and set up a 2:30 meeting at the
4
Time Warner building.
5
A.
Yes.
6
Q.
Did that occur?
7
A.
Yes.
8
Q.
Why don't you pick up the time line
9 10
there? A.
So we got together; we talked about the
11
logic of the business fit and the strategy of the
12
businesses of Bank of America and the businesses of
13
Merrill Lynch.
14
in selling a 9.9 percent stake and getting a large
15
credit facility.
16
wasn't interested in buying a minority stake, but
17
he would be interested in buying the whole company.
18
I said to him, "Well, I didn't come here to sell
19
the company," and we jointly agreed to pursue both
20
paths, a hundred percent and 9.9 percent, and we
21
set our various teams off on a due diligence and
22
structure process.
I said to him that I was interested
He said to me that he really
23
Q.
And what happened after the meeting?
24
A.
I mobilized our team and he mobilized
25
his team, and they began a process of due diligence
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Page 19 J. A. Thain
1 2
and structure.
3
Saturday afternoon, Saturday evening, Sunday.
4
Q.
That continued really all through
That sort of is a very condensed due
5
diligence cycle.
6
due diligence was accomplished in those two days?
7
A.
Can you speak to that, how the
I was not party to that.
That was
8
conducted on our side by people who work for me,
9
and I can't say on Bank of America's side.
10 11
Q.
On your side, who reported to you on
that issue?
12
A.
Primarily Greg Fleming.
13
Q.
Did you have discussions with Greg
14
Fleming about how the due diligence for a deal with
15
Bank of America would be accomplished in,
16
basically, a Saturday/Sunday time frame?
17
A.
Greg Fleming is a very experienced
18
financial institution investment banker -- that's
19
where he came from.
20
conversation about the due diligence process, but I
21
was quite comfortable that he was capable of
22
conducting that.
23
Q.
I don't recall a specific
How about from the side of Bank of
24
America?
Meaning, what was your understanding of
25
what Merrill did to give Bank of America
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Page 27 J. A. Thain
1 2
attention to is page 293 of the document, which is
3
towards the back.
4
"Section 5.2B."
There is a bullet point called
5
A.
Is this part of the schedule?
6
Q.
Yes. So you now have page 293 in front of
7 8
you?
9
A.
I do.
10
Q.
Did you participate in the negotiation
11
of this provision?
12
A.
I did not.
13
Q.
Were you aware of this provision?
When
14
I'm saying "this provision" I'm talking about
15
Section 5.2B on page 293 regarding the "Variable
16
Incentive Compensation Program." A.
17 18
I was aware that it was being
negotiated. Q.
19
If you could tell me what your
20
understanding was of what was being negotiated
21
here.
22
A.
My understanding of what was being
23
negotiated, was to provide for us, Merrill Lynch,
24
to be able to pay bonuses to our employees prior to
25
the deal closing, and that this provision set a cap
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Page 28 J. A. Thain
1 2
on the amount that we could pay out in those
3
bonuses.
4
number, the $4.5 billion number, and it also
5
specified the mix of cash and stock that we would
6
use.
7
would be paid out prior to the deal closing, and
8
that deal closing was expected to be on or around
9
December 31.
The main operative cap is the expense
And the expectation was that these bonuses
MR. LAWSKY:
10
You said you were aware
11
that this was being negotiated.
12
know?
13
THE WITNESS:
14
primarily, Greg Fleming.
15 16 17
MR. LAWSKY:
How did you
Through discussions with,
Can you talk about those
discussions? THE WITNESS:
I was aware that they were
18
negotiating the ability to pay our employees
19
for 2008 -- I was aware that they were
20
negotiating.
21 22
MR. LAWSKY:
with Fleming about this topic in particular?
23
THE WITNESS:
24
MR. LAWSKY:
25
Do you remember the meeting
I do not. You didn't have a separate
meeting about it; it just came up as one of
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Page 33 J. A. Thain
1 2
say, is that the number in the merger agreement was
3
a cap?
4
A.
Yes.
5
Q.
And you could go lower, but you couldn't
6
go higher.
7
A.
Correct.
8
Q.
And with respect -MR. LEVANDER:
9
You could always vary a
10
provision with the consent of the other side,
11
but without Bank of America's consent you
12
couldn't go over cap.
13
Q.
I don't see anything in here
14
particularly about the timing issue, but you
15
also -- is it fair to say that you also had the
16
right to have bonuses paid after December 31? Let me put that question in a slightly
17 18
different way.
19
agreement that required you to pay out bonuses by
20
December 31, 2008; is that right?
21
A.
There was nothing in the merger
My understanding of the way this works
22
-- I'm obviously not a lawyer -- is that this was
23
providing for bonus payments prior to the deal
24
closing -- whenever that might be -- and so the
25
timing of the bonus payments would be tied to the
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Page 34 J. A. Thain
1 2
transactions closing, which was expected to be on
3
or about the 31st, but the 31st itself isn't the
4
operative date.
5
Q.
The last sentence of Section 5.2 says
6
"The allocation of the 2008 VICP among eligible
7
employees shall be determined by the company in
8
consultation with parent."
9
consultation one that you were familiar with prior
10
to entering into this agreement? MR. LEVANDER:
11 12
mean by that.
13
A.
14 15
Is the concept of
I'm not sure what you
I don't know how to answer that.
I
understand the meaning of the word "consultation." Q.
Had you experienced other deals where
16
you had a right to consult on an issue prior to a
17
merger?
18
A.
I don't really remember.
I have only
19
been involved in a relatively small number of
20
mergers.
21
Stock Exchange and Euronext, I don't remember if
22
there was a particular provision in which we had
23
the right of consultation or not.
24 25
Q.
In the case of the merger of the New York
What was your understanding of what Bank
of America was entitled to do pursuant to its right
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Page 35 J. A. Thain
1 2 3
of consultation? A.
I don't think that was the way we worked
4
with them.
We were not operating under what their
5
technical rights were.
6
Our behavior with them was complete transparency.
7
They provided input to what the ultimate number
8
was; they changed the mix of cash and stock -- we
9
changed it at their request -- and they had access
They were acquiring us.
10
to name-by-name compensation figures.
11
an integral part of the process of determining both
12
what the ultimate pool size was and what
13
individuals got.
14
Compensation Committee ultimately approved the
15
bonus pool, but they had complete access to the
16
information and could provide input on it.
17
So they were
Now, technically, of course, our
MR. LEWIS:
When you say they had
18
"access," can you be more specific?
19
Andrea Smith, Steele Alphin; was it other
20
people?
21
THE WITNESS:
Was it
It was primarily Andrea
22
Smith and Steele Alphin because that was
23
their jobs, but any of the other Bank of
24
America people, if they asked for
25
information, would get it.
And so Neil
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Cotty, who was the acting CFO, and Joe Price,
3
who was Bank of America's CFO -- we were in
4
the mode of anything they wanted to see we
5
would provide to them. MR. LAWSKY:
6
Do you know whether Neil
7
Cotty and Joe Price, in addition to Andrea
8
Smith and Steele Alphin, were getting that
9
kind of individual data?
10
MR. LEVANDER:
11
MR. LAWSKY:
12
THE WITNESS:
13
MR. LAWSKY:
About bonuses. About bonuses. I don't know. That was a very compound
14
question.
15
of them got that kind of data, one by one?
16
Because you said you don't know as to all
17
four. THE WITNESS:
18 19
MR. LAWSKY:
Did you talk to her
directly about that? THE WITNESS:
22 23
individuals.
24
Q.
25
Andrea Smith had
name-by-name bonus information.
20 21
Do you personally know whether any
Yes.
For certain
And we'll get back to that.
want to understand.
One thing I
I understand that if someone
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1 2
reached out to you and asked you a question, you
3
would answer the question.
4
employees at Bank of America that affirmatively
5
said, This is what we're doing with comp bonus
6
payments?
7
A.
Were there any
I had an explicit conversation with
8
Steele Alphin on the aggregate bonus pool and on
9
the cash/stock mix, and Andrea Smith was provided
10
with name-by-name numbers at least for some subset
11
of the employee base.
12
Q.
I want to step away from the merger
13
agreement for a second and get some general
14
understanding of the way Merrill Lynch had
15
historically allocated bonuses prior to 2008. MR. LEVANDER:
16 17
to Merrill Lynch December of 2007. MR. MARKOWITZ:
18 19
You understand he comes
Q.
Yes, I do.
I'm assuming that you spoke to people
20
about how things were done historically, and if you
21
have no idea you can answer so. Do you have an understanding of how
22 23
bonuses were paid historically?
24
A.
Not to any significant degree.
25
Q.
Well, how about, do you have an
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internally what we expect the quarter to be,
3
but that also gets constantly refined.
4
whatever happens every single day changes
5
what the expectation is for the quarter.
6
Q.
So
As you mentioned, there were a series of
7
Comp Committee meetings in the fall and December of
8
2008 where the number gradually came down a few
9
times.
10
Do you have a recollection of any of those
meetings in particular? A.
11
Not specifics so that I can say on
12
such-and-such a day we had the following
13
such-and-such discussion. Q.
14
As the number was coming down during the
15
fall and December of 2008, what was the reason for
16
the constant takedown, so to speak? A.
17
Two primary drivers:
One was the
18
continued decline in the expectation for what the
19
industry was going to do, and the second was the
20
continued decline in Merrill's performance. Q.
21
And is there a third -- and by that, is
22
there a third, in that is Bank of America, through
23
any of its employees, asking you to lower the bonus
24
pool?
25
A.
The answer is, they are providing input
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to us on the size of the bonus pool and on the
3
cash/stock mix.
4
with Steele Alphin where he expressed the view that
5
they would like the bonus pool to be less than the
6
expense number, less than $3.5 billion, which I
7
agreed with.
8
Q.
9 10
So I had a specific conversation
Where was Merrill at the time that you
had this conversation with Mr. Alphin? A.
My recollection is that we were already
11
moving there, so there was no real difference
12
between where we were moving anyway and where he
13
had expressed their desire for us to be.
14
specific change that they asked us to do on the
15
cash/stock mix was at their request.
16
have changed the 60/40 to 70/30 other than they
17
asked us to.
18
Q.
Why did they ask you to do that?
19
A.
Again, you're asking me to speculate.
20
The
We would not
You should really ask them that.
21
Q.
Did Mr. Alphin tell you why?
22
A.
I don't recall a specific conversation
23
with him.
However, the two reasons that I
24
generally recall are:
25
higher percentage of cash moves more of the expense
One is that moving to a
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that took place on November 11, 2008? A.
Not specifically because these materials
were prepared and revised numerous times. Q.
If you could just turn your attention to
6
page 55, which is the year-end calendar, I see here
7
it says on December 31 "cash awards distributed."
8
Do you see that entry?
9
A.
I do.
10
Q.
What does that make reference to?
11
A.
I believe that is the payment of the
12 13
cash portion of the VICP pool. Q.
So by this time, had it been decided
14
that Merrill Lynch would pay out the cash
15
components of its bonus before the year end?
16
A.
When you say "decided," the expectation
17
was that the bonuses would be paid prior to the
18
deal closing; the expectation was that the deal
19
would close on or about December 31, and this
20
document is consistent with that.
21
Q.
When did you first have the expectation
22
that payments would be made before the deal
23
closing?
24 25
A.
When we signed the merger agreement and
the schedule to the merger agreement.
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look.
3
Mike Nierenberg, but he was not there for the full
4
year.
5 6 7
Ultimately, the mortgage area was run by
Q.
The mortgage area, was it called
"mortgage"? A.
Yes.
But there are other places that
8
are mortgage-related assets, so there is commercial
9
mortgages and there are -- historically, there were
10
a couple of proprietary groups that held
11
mortgage-related assets.
12
credit area that had credit-related assets, and
13
there are also historically a couple of proprietary
14
groups that have credit-related assets.
15
why it's easier to think about it as mortgage and
16
mortgage-related assets and credit and
17
credit-related assets rather than each of the
18
individual groups.
19
Q.
Then there is also a
So that's
We were trying to go through earlier
20
this morning the progression of coming up with the
21
bonus pool.
22
its bonus pool for 2008 bonuses?
23
A.
When did Merrill Lynch come up with
The bonus pool was finalized at the Comp
24
Committee meeting on December 8 and ratified by the
25
board.
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Q.
Did you participate in that meeting?
3
A.
I did.
4
Q.
And with respect to the December 8
5
meeting, what was the final pool that was decided
6
upon? A.
7 8
The final pool was approximately $3.2
billion.
9
Q.
And you're speaking in terms of expense?
10
A.
Right.
11
Q.
And I have, from information provided by
With a 70/30 cash/stock split.
12
Bank of America, something that says $2.5 billion
13
in cash and $3.62 billion total pool.
14
sound about right to you?
Does that
15
A.
That sounds about right.
16
Q.
As of December 8, where was Merrill
17
Lynch with respect to its year-to-date losses? A.
18
I don't know the number off the top of
19
my head because I don't happen to know exactly what
20
that number was.
21
October-November results and a couple of days in
22
December.
23 24 25
We would have had
Q.
Would you have projected results to
A.
I don't think you meant to ask it that
date?
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estimate losses were going to be? A.
First of all, the bonus recommendations
4
are the responsibility of the Comp Committee.
5
to the best of my recollection, I would have known
6
where we stood as of that point in time when we
7
were making those recommendations. MR. LAWSKY:
8
Is there a projection on
9
here for what the end of the year will be?
10
Is that what that is, or is that where you
11
are as of November 8 -- the 19 and the 32
12
number. THE WITNESS:
13 14
But
It appears to me to be the
year-to-date estimate.
15
MR. LAWSKY:
16
THE WITNESS:
17
MR. LAWSKY:
To November 8th. Correct. Is there a projection in
18
here for the year where you're going to end
19
up?
20 21 22
THE WITNESS:
Not unless I page through
this, I'm not going to know that. MR. LAWSKY:
Do you recall when you went
23
into the November 8 meeting, had your team
24
worked out an estimate of what you thought
25
things would look like at the end of the
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year? THE WITNESS:
3
As of this date, December
4
8th, we were estimating the quarter to be
5
approximately -- to the best of my
6
recollection, as of this date, we were
7
estimating the quarter to be approximately
8
$14 billion loss pretax, approximately $9
9
billion loss after tax. MR. LAWSKY:
10
So then you would have had
11
a yearly estimate in your head, as well,
12
since you already know the first three
13
quarters.
14
quarters previous, which I think -- were you
15
down 5 after the first three?
You add the 14 to the three
16
THE WITNESS:
17
MR. LAWSKY:
18
No. Were you around 26 for the
year then?
19
THE WITNESS:
20
MR. LAWSKY:
21
THE WITNESS:
I don't want to guess. Do you remember? I don't remember the
22
number.
23
you're correct; you could just add them up.
24
Q.
25
I remember the quarter number.
But
So the actual fourth quarter loss was
about $15 billion?
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A.
After tax.
3
Q.
So it actually went down a little bit --
4
strike that. You didn't have the number yet as of
5 6
December 8; you had just year-to-date through
7
November in terms of $19 billion here? A.
8 9
No.
You're mixing up the numbers.
This
number appears to me to be the quarter to date.
10
You then asked me a question about what the
11
estimate for the fourth quarter was as of this
12
date, which I told you my recollection is $14
13
billion pretax, $9 billion after tax.
14
number for the fourth quarter was ultimately,
15
approximately $21 billion pretax, $15 billion after
16
tax.
17 18
Q.
The final
Understood. MR. LAWSKY:
Let's stop there for a
19
second because I missed this.
20
estimate on December 8 was 14 pretax; it ends
21
up at 21 pretax.
22
how do you explain that difference?
23
just couldn't predict what was going to
24
happen with the rest of December.
25
THE WITNESS:
So the
So the $7 billion delta, Or you
Right, right.
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is determined to reward performance and to retain
3
people, and those numbers would have no impact
4
either on individual performance or on retention. Q.
5
Did you, at any time between December 8
6
and December 31, say, "Wait a minute, we have
7
billions of dollars in losses more than we thought.
8
We need to rethink our bonus determination"? A.
9
We did not change our bonus
10
determination substantially -- in any significant
11
way -- after December 8. Q.
12
Did you consider changing the bonus
13
determinations after December 8 as a result of
14
worsening earnings?
15
A.
Again, I'm going to repeat what I said
16
before.
Because of the $2.3 billion and the $650
17
million that were not related to any individual
18
performance or any retention element, the answer is
19
no.
20
Q.
So you didn't even consider it?
21
A.
We did not consider changing the bonus
22 23
pools after December 8th. Q.
Did you advise anyone from Bank of
24
America of the deteriorating financial condition of
25
Merrill Lynch between December 8 and December 31?
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A.
Bank of America had daily access to the
exact same financial information that I had. MR. LAWSKY:
4
Access is different -- and
5
I understand your answer; I just want to draw
6
down on it a little bit -- access is
7
different than sort of having conversations
8
with you or your guys.
9
happening in terms of you updating them on
10
how things were going?
11
A.
Was that also
The acting chief financial officer, Neil
12
Cotty, sat in meetings and discussions and was
13
totally up-to-speed as to what was happening. MR. LEVANDER:
14 15
will, is that a cash item or a non-cash item? THE WITNESS:
16 17
That impairment of good
Q.
Non-cash item.
Did anyone from Bank of America between
18
December 8 and December 31, either to you directly
19
or to your knowledge, suggest that Merrill Lynch
20
should further reduce its bonus pool from where it
21
had been established?
22
A.
Not to my recollection or knowledge.
23
Q.
Did you have any discussions about that
24
topic with anyone from Bank of America even if they
25
didn't say that you should lower it?
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carrying -- I don't know what the exact number was
3
-- $50 billion, $60 billion, $70 billion worth of
4
cash.
The availability of cash was never an issue. Q.
5
Were the bonus awards that was
6
determined on December 8 at all impacted by your
7
understanding that Merrill would be taken over by
8
Bank of America? A.
9
I can't answer that because the bonuses
10
and the ability to pay the bonuses were tied to the
11
transaction.
12
with Bank of America, we would have done something
13
else.
14
upon what was necessary to both reward and retain
15
the franchise.
16
If we hadn't done the transaction
And the bonus levels were determined based
Q.
I just want to go back.
With respect to
17
the timing issue, who at Bank of America did you
18
have conversations with about the timing?
19
A.
The timing --
20
Q.
Meaning, the December 31 payout as
21 22
opposed to the following year. A.
The timing, as we talked about before,
23
was determined when we signed the merger agreement.
24
The timing was contemplated then, in September, to
25
be prior to the close, and the expectation was
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J. A. Thain
2
always that the close would be on or around
3
December 31.
4
MR. LAWSKY:
Why?
I'm still not clear
5
on why it was important to go in December
6
rather than January with the bonuses.
7
THE WITNESS:
When you say December or
8
January, whether it was December 31 or
9
January 1 or 2, that isn't particularly
10
relevant.
11
be paid prior to the closing, so that the
12
bonuses would be determined by the business
13
people who were running the businesses for
14
the entire year.
15
It was relevant that the bonuses
MR. LAWSKY:
But Bank of America could
16
have figured out with your help, I assume,
17
bonuses in January for the prior year.
18
had access to the books, as you said.
19 20 21
THE WITNESS:
They
This was part of the deal
that they and we negotiated. MR. LEVANDER:
He's already testified
22
that by their requesting that it go from
23
60/40 to 70/30, they were trying to get more
24
expense in Merrill's fourth quarter than
25
their first quarter.
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if we do this at the same time; we're going to be
3
one company, and this way all of our combined
4
employees get their payments at the same time?
5
A.
I don't recall any such discussion.
6
Q.
Did you have any discussion that there
7
might be some integration issues if some employees
8
were getting paid ahead of other employees?
9
A.
No.
We really didn't have that
10
discussion -- to the best I can recollect.
11
have discussions along the lines of lining up
12
levels of compensation to not create those
13
integration problems.
14
Smith suggested some specific changes to accomplish
15
exactly that, to line up compensation levels, but
16
there was never a discussion as to the timing.
17
MR. LAWSKY:
We did
As a matter of fact, Andrea
I'm getting lost on the
18
time line a little with Andrea Smith.
19
you're saying she's making suggestions to
20
particular people's numbers and aligning
21
things, is that pre to the December 8 Comp
22
Committee meeting where the board gives
23
thumbs-up to the numbers?
24 25
THE WITNESS:
When
To the best of my
recollection, no, it's after.
The pool gets
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set on December 8, and then the individual
3
numbers get set after that over the course of
4
the next week or so. MR. LAWSKY:
5
And it was in that process
6
where she had a look-see at everyone's
7
number, and she was having input into them? THE WITNESS:
8 9 10
She didn't
necessarily have a look at everyone's number, but she had access to everyone's number. MR. LEVANDER:
11 12
Correct.
Did she have input before
December 8? THE WITNESS:
13
She was part of the
14
discussions of the bonus levels.
15
remember her specific input. MR. LAWSKY:
16
I don't
This is news to me.
I
17
didn't realize -- I thought everything was
18
set; as of the December 8 meeting the board
19
votes.
20
lag where the pool is set, but the individual
21
numbers are still getting worked out.
22
But you're saying now there is a week
THE WITNESS:
Yes.
That's actually one
23
of the reasons why the numbers turn out to be
24
slightly different than the numbers that get
25
approved on December 8 because when you do
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the individuals it doesn't come out exactly
3
right. MR. LAWSKY:
4
And then you have to go
5
back to the board with those individual
6
numbers or back to the Comp Committee? THE WITNESS:
7
Certain individual numbers
8
get approved at a final Comp Committee
9
meeting, which was sometime in December. Q.
10
Did Andrea Smith ever sit down with you
11
before the end of 2008 and indicate to you what
12
certain types of employees make at Bank of America
13
in certain types of positions?
14
A.
Yes.
15
Q.
For example, a Bank of America equity
16
analyst would make about this kind of money -- that
17
type of a thing. A.
18
Yes.
It wasn't equity analyst -- but
19
Bank of America HR person, Bank of America Risk
20
person.
21
Q.
Which categories did she go through with
A.
I don't recall specifically, but it was
22 23 24 25
Yes.
you?
things like Q.
REDACTED
.
And did you then compare that in your
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own mind with what -- strike that. Did you share with Andrea Smith what the
3 4
comparable people at Merrill made in those
5
positions?
6
A.
Yes.
7
Q.
And how did it shake out?
8
A.
This discussion is what led to certain
9
changes in the comp numbers where we typically
10
brought the Merrill number down to be more in line
11
with the Bank of America number -- I'm sorry, one
12
other area which I just remembered is the
13
Communications and PR area.
14
Q.
But in each of the areas, as a general
15
matter, the Merrill employees in the same positions
16
were earning more than the Bank of America people
17
in the same positions?
18
A.
You can't make that blanket statement,
19
but in the infrastructure parts of the business
20
that was generally true.
21
MR. LAWSKY:
Did Andrea Smith focus in
22
on any particular people, do you recall,
23
whose numbers she thought were too big?
24
THE WITNESS:
She did --
25
MR. LAWSKY:
Or too small?
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THE WITNESS:
I don't recall any of them
3
being too small.
4
individuals who she thought were high, who we
5
changed and brought down.
6 7 8 9
Yes.
MR. LAWSKY:
She did have some
Who do you remember of
those people? MR.
LEVANDER:
I've been directed not
to disclose, by the company, individual names
10
other than the names of the top people who
11
are under Section 16.
12
Bank of America counsel.
13
on the phone with Mr. Liman --
14
MR.
LAWSKY:
We were directed by If you want to get
If you don't want to tell
15
us the names, you can just say "I don't want
16
to tell you the names."
17
MR. LEVANDER:
He has no problem telling
18
the names.
19
Bank of America, and I'm following that
20
direction.
21 22 23 24 25
We were directed by counsel for
MR. LAWSKY:
I'm asking, Do you want to
give us the names? MR. LEVANDER:
He's given you the
category -MR. LAWSKY:
I'm not asking you for the
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numbers that people got.
3
Andrea Smith asked numbers to come down for.
4
Are you telling me Bank of America doesn't
5
want you to disclose that? MR. LEVANDER:
6
I'm asking who
That's my understanding,
7
but I'll tell you what.
8
I'll try to find out if that's what the
9
direction was. MR. LAWSKY:
10 11
At the next break
Let the record reflect the
witness is refusing to answer. MR. LEVANDER:
12
At direction of counsel
13
-- at the direction of Bank of America's
14
counsel. MR. LAWSKY:
15
I'm not calling Mr. Liman
16
because it's your deal with him, but if you
17
can work that out it would be great. (Exhibit 4 was marked for
18 19
identification.)
20
Q.
21
Exhibit 4 --
I'm handing you what's been marked as
MR. LAWSKY:
22
Let me follow up with one
23
thing:
Was it your understanding that Miss
24
Smith was speaking with, if you know, with
25
Mr. Alphin regularly based on your
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Liman's objections are.
3
given me a direction.
4
confidentiality obligations even though he's
5
an ex-employee; those exist.
6
let's go on. MR. LAWSKY:
7
All I know is, he's Mr. Thain has
Therefore,
Let me try to understand a
8
few things.
Have you entered into any type
9
of severance agreement with Bank of America?
10
THE WITNESS:
11
MR. LAWSKY:
I have not. So with respect to -- and
12
earlier, were you, in fact, asked to leave?
13
Is that the correct characterization?
14
THE WITNESS:
15
MR. LAWSKY:
Yes. Post departure, has there
16
been any -- even if not in writing -- any
17
sort of agreements or joint agreements or any
18
kind of cooperation agreement with Bank of
19
America? THE WITNESS:
20 21
Q.
Not with me.
I want to switch gears a little bit and
22
go back to the fourth quarter losses.
Did you ever
23
consider whether Merrill Lynch should disclose its
24
losses to its investors?
25
MR. LEVANDER:
In what period of time?
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1
MR. MARKOWITZ:
2 3
2008.
4
A.
The fourth quarter of
Merrill Lynch, as a policy, doesn't make
5
projections, doesn't give guidance and doesn't
6
disclose interim results.
7
Q.
And a lot of firms have that and depart
8
from that policy in times when there's a serious
9
deviation, and given the deviation that was
10
occurring in the fourth quarter of 2008, did you
11
consider whether or not it was appropriate to make
12
a disclosure?
13
A.
The market conditions were generally
14
known, and we would not have disclosed interim
15
results in that fourth quarter.
16
Q.
So you did not consider doing that?
17
A.
That discussion topic of interim results
18
was one that comes up periodically, but we
19
maintained that since we don't give guidance, and
20
since we don't give projections, and since we don't
21
disclose interim results, that it would not have
22
been appropriate to do so then.
23
Q.
Did the issue come up in the fourth
24
quarter of 2008 of whether or not it was
25
appropriate to disclose the losses that were
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Page 148 J. A. Thain
1 2
accumulating on the books? A.
3 4
I don't recall any specific discussion
about that topic.
5
Q.
How about a general recollection?
6
A.
There was some discussion about the
7
results, and there is a discussion every Monday
8
about the results, which include our general
9
counsel.
So there are always ongoing discussions
10
about our results, but I don't recall any specific
11
discussion about do we need to disclose. Q.
12
Did anyone approach you and say, "I
13
think we've got to make an announcement about where
14
we were given the quarter"?
15
A.
No.
16
Q.
Did anyone discuss whether -- strike
17
Not to my recollection.
that.
18
Did you consider whether Merrill Lynch
19
should disclose its departure from prior practice
20
in issuing bonuses before the end of the calendar
21
year?
22
MR. LEVANDER:
I'm not sure what the
23
departure of prior practice was.
If you want
24
to ask the question whether they considered
25
disclosing the payments of bonuses in
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Page 149 J. A. Thain
1 2
December on or about December 31, that's
3
fine.
4
A.
5
I don't recall any discussion about
disclosing the timing of payments of the bonuses. Q.
6
Did you consider disclosing that you'd
7
issue the bonuses -- made compensation bonus
8
awards, and several billions in additional losses
9
had accrued after setting those bonuses?
10
A.
Ask the question again, please?
11
Q.
Did you consider disclosing after
12
December 8, and you had set bonus awards, that
13
bonus awards had been set, and since that time
14
there had been several billion dollars in losses? A.
15 16 17 18 19
I don't recall that discussion at that
time. Q.
Is that something that you think an
investor would want to know? A.
Investors were aware that we were
20
accruing bonuses, and, as I said before, we don't
21
make projections, we don't give guidance, and we
22
don't release interim results.
23
Q.
Do you think investors would want to
24
know that you set bonuses based on a number even
25
though you knew there were multiple billions of
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Page 150 J. A. Thain
1 2
dollars in losses that incurred after you set the
3
number?
4
A.
I'm going to answer the same way.
5
Investors were aware that we were accruing bonuses,
6
and we don't disclose interim losses as a matter of
7
policy.
8
Q.
9 10
Investors knew that you were accruing
money for bonuses, but they didn't know that you were going to pay them out early, did they? A.
11
The concept of paying it out early, as I
12
said before, we never contemplated disclosing the
13
timing of the payment of the bonuses.
14
Q.
15
neutral way:
16
have an understanding that Merrill Lynch would be
17
paying bonuses before the end of calendar year
18
2008?
19
A.
Let me ask the question in a more Would an investor in Merrill Lynch
Since the investors were aware that we
20
were accruing bonuses, and the investors would be
21
aware of the P and L impact of those payments, I
22
don't see that the specific timing is relevant. MR. LAWSKY:
23
Let's draw a little simple
24
line.
If that's what's going on in the
25
economy in general, wouldn't an investor want
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Page 163 J. A. Thain
1 2 3
and Bob McCann. Q.
And what was the thinking behind
4
awarding that group of people a strategic
5
transition payment?
6
A.
The discussion of that as an option,
7
which, as I said before, was ultimately rejected,
8
was compensating the senior executives for
9
executing a transaction that was in the best
10
interest of Merrill shareholders.
11
Q.
And you supported the payments?
12
A.
No.
It was a discussion we had, and in
13
the end, I recommended to the board that I receive
14
no bonus.
15
four members, and in the end, I and they also
16
recommended that they receive no bonus.
We then had a discussion about the other
MR. LAWSKY:
17
Do I have this right?
So
18
the five people you're willing to talk about
19
today all got no bonuses? THE WITNESS:
20 21
Q.
Correct.
The conversation of these strategic
22
transition payments started in November; is that
23
right?
24 25
A.
I don't recall exactly but sometime in
that time frame.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit D
-------------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-------------------------------------------------------------
EXAMINATION of KENNETH LEE LEWIS, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 26, 2009 at 4:30 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 5 K.L. Lewis
1 2
Q.
Do you have any questions at this time?
3
A.
No. MR. MARKOWITZ:
4 5
your appearance.
6
MR. LIMAN:
Counsel, please identify
Lewis Liman, James Wyatt,
7
Trisha Lawson and Catharine Slack for the
8
witness. MR. MARKOWITZ:
9 10 11 12 13
Q.
Thank you, Counsel.
Could you please state your Social
Security number for the record? A.
REDACTED . MR. MARKOWITZ:
Counsel, I know we've
14
been having a discussion about if Bank of
15
America will provide a list of the top 200
16
bonus recipients of Merrill Lynch, and I just
17
want to be clear that Bank of America is
18
refusing to do that.
19
MR. LIMAN:
Let me do something on the
20
record.
21
office of the attorney general to produce
22
information in redacted form, which we did.
23 24 25
We had reached an agreement with the
MR. LAWSKY:
Which information did you
produce? MR. LIMAN:
Some bonus information in
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Page 6 K.L. Lewis
1 2
redacted form, which we did several weeks ago
3
following a conversations with the attorney
4
general's office.
5
the other day.
6
it.
7
attorney general's office agrees to keep it
8
private and confidential and agrees to the
9
court order that is currently in place.
10
We did receive a request
We have refused to produce
We will produce information if the
Q.
With respect to the court order that's
11
in place, I believe yesterday several attorneys --
12
or at least an attorney from the New York attorney
13
general's office, I think it was Ben -- offered
14
that any production of specific information would
15
be maintained subject to the temporary
16
confidentiality order put in place by Judge Fried
17
on Tuesday.
18
MR. LIMAN:
If you're agreeing that that
19
could be made permanent then we should
20
discuss it.
21 22 23
MR. LAWSKY:
What do you mean "made
permanent"? MR. LIMAN:
Meaning that you will
24
propose the order staying in place, and we
25
will have authority to enforce the order.
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Page 7 1 2 3 4
K.L. Lewis MR. LAWSKY:
Do you mean staying in
place regardless of what the court does? MR. LIMAN:
Correct.
I understand
5
you're challenging the order.
6
not to challenge the order and to agree to
7
what the judge has put in place, then we will
8
take it back and confer with the legal staff
9
at Bank of America, and I believe we will be
10 11
If you decide
able to produce the information. MR. MARKOWITZ:
Just to be clear, we're
12
not challenging anything right now.
13
order was a temporary order that was put in
14
place to allow you to make an application
15
regarding confidentiality, and what we are
16
doing is saying subject to the time when you
17
can seek a court order of confidentiality
18
order we would agree to keep it confidential
19
to preserve your rights.
20
MR. LIMAN:
The
That's what I understand.
21
To those circumstances we are not agreeing to
22
produce the document, the unredacted
23
information.
24
MR. LAWSKY:
25
MR. LIMAN:
On what grounds? Do we need to waste the
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Page 8 K.L. Lewis
1 2
witness's time? MR. LAWSKY:
3
No.
But let's just do
4
this.
Frankly, if you lose in court, you're
5
going to have to give it to us anyway.
6
MR. LIMAN:
7
MR. LAWSKY:
So I'll address it in court. Fair enough.
8
to waste your time.
9
with a subpoena now.
10
MR. LIMAN:
11
THE WITNESS:
12
I don't want
We're going to serve you
That's fine. We got off to a great
start. MR. LAWSKY:
13
We're asking for this
14
information from your lawyers for a long
15
time, Mr. Lewis.
16
been provided. MR. LIMAN:
17 18
It's surprising it hasn't
That, actually, is not true
at all. MR. LAWSKY:
19 20
ago.
21
Q.
The letter was 2 1/2 weeks
Mr. Lewis, I have some questions about
22
the Bank of America merger with Merrill Lynch.
23
there come a time when you considered undoing the
24
merger between Bank of America and Merrill Lynch?
25
A.
Yes.
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Did
Page 9 K.L. Lewis
1 2
Q.
When did you first consider doing that?
3
A.
I want to make sure I get the date
4
right.
5
if that's a Sunday because I was in New York, and I
6
was about to go home -- and what triggered that was
7
that the losses, the projected losses, at Merrill
8
Lynch had accelerated pretty dramatically over a
9
short period of time, as I recall, about a week or
10
I'm pretty sure it was December the 13th --
so.
11
Q.
How did you come to learn of that?
12
A.
Joe Price, our CFO, called me.
13
Q.
Take me through what Mr. Price
14 15
communicated to you on that call. A.
He basically said what I just said:
The
16
projected losses have accelerated pretty
17
dramatically.
18
month, so that it was a possibility that at least
19
some of the marks could come back, but now we had
20
not very many business days because Christmas was
21
coming and all of that.
22
just of the acceleration of the losses.
23 24 25
Q.
We earlier on had more days in the
So we became concerned
What did Mr. Price tell you about the
extent of the losses, basically? A.
He just talked about the amounts.
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Page 10 K.L. Lewis
1 Q.
2 3
And what were they as of the time you
spoke to Mr. Price? MR. LIMAN:
4 5
remember.
6
A.
To the extent that you
To the extent that I remember, the
7
losses had accumulated to about $12 billion after
8
tax.
9
Q.
Anything else?
10
A.
That was the whole focus. MR. LAWSKY:
11 12
and L at the time?
13
THE WITNESS:
Were you getting a daily P
We were getting
14
projections.
I was getting a P and L at Bank
15
of America, but we were getting projections.
16
I don't recall getting them every day, but I
17
was either hearing about them and in some
18
cases I saw them.
19
MR. LAWSKY:
Can you explain, when you
20
say a conversation with Price is what got you
21
thinking this way, if you were getting these
22
P and L's over time, what was it about the
23
Price conversation which put you over the
24
edge?
25
THE WITNESS:
Just that that amount --
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Page 11 K.L. Lewis
1 2
I'm not sure I was getting them every day.
I
3
don't recall getting them every day because
4
they were projections, not daily P and L's.
5
So the concern was, we had had a forecast on
6
December 5th, as I recall, of $9 billion, but
7
$3 billion pretax was a plod (phonetic) just
8
for conservative reasons; so what you saw was
9
basically a 7 to 12 if you could go through
10
the plod, and then you get to the $12
11
billion.
12
the original amount in a very short period of
13
time.
So a staggering large percentage of
MR. LAWSKY:
14
Just so the record is
15
clear, I have your calendar in front of you,
16
although you don't -- Counsel produced it.
17
December 14 was on a Sunday.
18
to arrive 3:30."
19
that day?
You're in New York leaving
20
THE WITNESS:
21
MR. LAWSKY:
22
the meeting with Price? THE WITNESS:
23 24 25
It says "depart
Yes. So is that the day you have
Not a meeting, a phone
call. MR. LAWSKY:
So Sunday, December the
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Page 103 K.L. Lewis
1 2
REDACTED
6
REDACTED
7 8 9 10 11 12
Q.
As of this time -- we spoke a little
13
earlier about the Merrill Lynch 2008 bonus pool.
14
When was the first time that you learned that
15
Merrill Lynch decided to pay out its 2008 bonuses
16
before 2009?
17
A.
I don't remember the exact time.
18
Q.
About?
19
A.
I don't remember.
20
MR. LAWSKY:
21
THE WITNESS:
22
MR. LAWSKY:
How did you learn that? Steele Alphin told me. And what do you recall
23
about that conversation?
24
THE WITNESS:
25
I recall that he said that
he attempted to get them not to do that, but
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Page 104 K.L. Lewis
1 2
that the board and John and the Compensation
3
Committee had done it. MR. CORNGOLD:
4 5
already.
6
THE WITNESS:
7
MR. CORNGOLD:
8
So it had happened
Yes. So we're talking after
Thanksgiving, do you believe? THE WITNESS:
9
I don't remember the exact
10
date.
11
with the economy and with the breakdowns.
12
Again, we were in the midst of issues
MR. LAWSKY:
Are you saying you wanted
13
Merrill Lynch to pay out the bonus pool after
14
the quarter ended end of December and pay it
15
out in January?
16
THE WITNESS:
First of all, that's our
17
practice, and, secondly, to the best of my
18
recollection, there were conversations by
19
Steele, and, I was told, by Andrea, to get
20
them to do it like we do it.
21
MR. LAWSKY:
22
THE WITNESS:
23
MR. LAWSKY:
Andrea Smith, you mean? Yes. And those conversations, to
24
your knowledge, predated their doing it on
25
December 8th?
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Page 105 K.L. Lewis
1
THE WITNESS:
2 3
knowledge.
Yes.
MR. LAWSKY:
4
To the best of my
Prior to December 8th did
5
you have an expectation that Merrill Lynch
6
would be paying bonuses in January? THE WITNESS:
7
It wasn't a focused,
8
conscious assumption that they would, but I
9
would have expected them to until they made
10
their decision. MR. CORNGOLD:
11
Was it a practice in the
12
industry to pay bonuses after the end of the
13
year?
14
THE WITNESS:
Actually, I don't know
15
what others do.
16
we pay them on February 15.
17 18
I just know what we do, and
MR. CORNGOLD:
You don't know whether
other financial entities pay them before?
19
THE WITNESS:
20
MR. CORNGOLD:
I do not. Have you ever heard of
21
paying out bonuses before you know what your
22
year end actually looks like?
23
THE WITNESS:
I've heard it, but not
24
investment banks.
I've heard about
25
commercial banks doing that.
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MR. CORNGOLD:
3
THE WITNESS:
They didn't stop him. The way I've had our
4
ability is described as this:
In the first
5
negotiations there was a ceiling set on how
6
much they could pay.
7
could advise or consult -- I forgot the right
8
word -- but we could not actually make a
9
decision for them.
Then I was told that we
That's reenforced -- what
10
I've been told -- that as long as a company
11
is a public company with a separate board and
12
separate committees, that you cannot be
13
perceived as running the company; therefore,
14
you cannot be making decisions on their
15
behalf.
16 17 18
MR. CORNGOLD:
What would happen if you
were perceived as running the company? THE WITNESS:
I was told --
I don't
19
know if it's not legal or it's against some
20
security law.
21
that you cannot be perceived to --
22 23 24 25
I've always been instructed
MR. LIMAN:
I'm asking not to get into
conversations you had with counsel. MR. LAWSKY:
But isn't it true that you
sent a message to Thain that he was not to
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Page 108 K.L. Lewis
1 2 3
take a bonus higher than yours? THE WITNESS:
No.
I did not send that
4
message.
All that I remember about that is,
5
Steele related to me that there was a first
6
conversation about -- please give me license
7
on the number -- but a conversation about a
8
$40 million bonus not tied to the company's
9
loss, but tied to the deal getting done.
I
10
don't know all that happened, but I was told
11
that --
12
Andrea -- he was told very strongly that you
13
should not do that; that you would damage
14
yourself with the Bank of America board if
15
you do that, and if you ever wanted a chance
16
to be in the running for my job then that
17
would eliminate it.
18
MR. CORNGOLD:
I don't know if Steele did it or
Did you have an
19
understanding that he was told that about
20
when the bonuses would be determined, when
21
the total bonus would be determined?
22
THE WITNESS:
I don't know that.
Then
23
sometime after that -- I don't know how the
24
progress was made or whatever -- I was told
25
that there was an agreement that he should
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Page 109 1
K.L. Lewis
2
make something less than me, and then,
3
subsequently, as things got worse and worse,
4
I told our board that nobody in our team
5
would get anything.
6
nine people, I think.
7
maybe two, three or three, four.
8 9 10
MR. CORNGOLD:
You understood
expressed about his bonus; is that correct? THE WITNESS:
12
MR. CORNGOLD:
14
I think he did it with
specifically what the threat was to Mr. Thain
11
13
I think that was like
The threat -The threat if you take
the 40 it's going to look bad for the board. THE WITNESS:
That's what Steele related
15
to me -- I don't know if he or Andrea related
16
-- that was relayed to him that that would
17
not be acceptable to our board.
18
have a chance to succeed me if he did.
19
MR. CORNGOLD:
He would not
But you don't know if
20
that threat was made with respect -- and
21
"threat" may be a bad word.
22 23 24 25
MR. LIMAN:
You could say "if that
message would be conveyed" or something. MR. CORNGOLD:
If those consequences
were told to Mr. Thain about when the bonuses
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Page 110 K.L. Lewis
1 2 3
would be set and delivered. THE WITNESS:
I don't know.
All I
4
remember is that -- again, I don't remember
5
if it was Steele or Andrea -- but they were
6
pushing him to follow a methodology where he
7
would pay them after.
8 9
MR. CORNGOLD:
Did you say to either of
them in words or substance, Tell him that if
10
he pays the bonuses before January 1st,
11
that's going to adversely affect his position
12
with Bank of America's board?
13
THE WITNESS:
I did not tell them that,
14
and I don't know how strongly they said it,
15
but I was told they were saying it pretty
16
strongly.
17
MR. CORNGOLD:
With respect to his
18
bonus, you knew what they were saying with
19
respect to his bonus, correct?
20
THE WITNESS:
21
MR. CORNGOLD:
Correct. But you didn't know what
22
they were saying with respect to the over $3
23
billion in bonuses that were being set for
24
everybody else at Merrill Lynch?
25
THE WITNESS:
No.
I was told that
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Page 111 K.L. Lewis
1 2
Andrea was helping John look at those
3
bonuses, but I don't know anything more. MR. CORNGOLD:
4
And you knew that the
5
expression of the consequences to Mr. Thain
6
was successful in getting him to change his
7
decision about his own bonus, correct? MR. LIMAN:
8 9
Would you mind asking him an
open-ended question? MR. CORNGOLD:
10
I though I was asking an
11
open-ended question.
12
what an open-ended question is.
13
MR. LIMAN:
14
THE WITNESS:
I guess I don't know
"Did you know" -I don't know -- the $40
15
million bonus to one person when you had a
16
loss clearly would have destroyed with our
17
board.
And so that's pretty severe. MR. CORNGOLD:
18
But you didn't think that
19
$3-plus billion bonuses set before the
20
company knew what the results were going to
21
be for the company would have the same impact
22
with your board? THE WITNESS:
23
I don't know what they
24
said.
I don't know how strongly they said --
25
all I know is, I was told that they urged him
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1 2
very strongly not to pay them early.
3
know if they gave consequences like that.
4 5
MR. CORNGOLD:
I don't
You didn't tell them to
give consequences like that?
6
THE WITNESS:
7
MR. LAWSKY:
No. We had other testimony that
8
the early payment of the Merrill bonuses was
9
contemplated back in September when the deal
10 11 12 13 14
was struck.
Is that false?
THE WITNESS: time of payment. MR. LAWSKY:
THE WITNESS:
16
MR. LAWSKY:
Right. Were you involved in those
negotiations?
18
THE WITNESS:
19
MR. LAWSKY:
20
Being an issue in the
initial negotiations.
15
17
I have no recollection of
No. Were you involved in the
September negotiations in general?
21
THE WITNESS:
22
MR. LAWSKY:
Yes. Were you involved at all in
23
the negotiations over the bonus provision
24
with regard to the $5.8 billion?
25
THE WITNESS:
I was not.
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Page 115 K.L. Lewis
1
THE WITNESS:
2
First of all, you start
3
with a portion of it that's predate because
4
you have guarantees and signing bonuses, etc.
5
I don't know enough about their individual
6
contracts to know how many of those there
7
were --
8
MR. CORNGOLD:
9
MR. LIMAN:
Let him finish.
MR. CORNGOLD:
10
It wasn't relevant --
If I ever interrupt you
11
before you finish an answer, please make sure
12
that you finish the answer. THE WITNESS:
13
-- so you have guarantees,
14
signing bonuses, and then there are
15
individuals that you would be vulnerable to
16
losing that would cause your revenue
17
projections for the following year to be
18
diminished. (Recess was taken.)
19 20
Q.
Staying on the topic of the Merrill
21
Lynch bonus payments, after you learned -- you have
22
the Joe
23
about in the beginning of today's testimony where
24
you learned about the fourth-quarter deterioration
25
at Merrill, do you revisit the issue at all, or do
Price conversation that we started talking
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Page 116 K.L. Lewis
1 2
you visit the issue of Merrill Lynch bonuses? A.
3
No.
Again, put it in context of that
4
issue, again, seeing the market deteriorating
5
within our own company, seeing losses going up
6
rising pretty rapidly, and beginning to wonder if
7
we needed to cut our dividend.
8
in which I was operating. Q.
9
That's the context
That's why I don't understand.
The
10
question being, given year-end bonuses, bonuses are
11
supposed to be based on -- to my understanding --
12
year's performance.
13
year performance was going to be significantly
14
worse than it had been before. Did you reach out,
15
or have your people reach out to the Merrill people
16
saying, You got to knock the number down? A.
17
You were learning that the
I don't know if we did or we didn't, but
18
I was concerned about some pretty big things going
19
on.
20
REDACTED
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Page 117 K.L. Lewis
1 Q.
2 3
I'm talking -- the bonuses weren't paid
until December 31st. A.
4
Right.
My point is, if you could think
5
about the context in which I was operating, I was
6
not thinking about when bonuses were paid. Q.
7 8
How about the amount of bonuses that
were going to be paid?
9
A.
I wasn't thinking about bonuses.
10
Q.
Were you thinking about the integration
11
of Merrill Lynch and Bank of America? A.
12
Some, but more about these other things. MR. CORNGOLD:
13
Even in December of 2008
wasn't $3.5 billion a material number?
14
THE WITNESS:
15
I'm not saying it wasn't
16
material.
I'm saying I had people that I
17
trusted and had great confidence in handling
18
the issue -- and who I know are very
19
conservative people.
20
Q.
And they were working with John Thain to
21
bring those numbers down?
22
understanding? A.
23
Is that your
It was my understanding that Andrea was
24
making a lot of progress in getting the numbers to
25
him.
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Page 137 K.L. Lewis
1
THE WITNESS:
2
No.
But I couldn't tell
3
you for a fact that it is.
4
Q.
5 6 7
signature? A. of Randall.
I don't remember seeing a full signature I do recognize these law firms. MR. LAWSKY:
8 9
Do you recognize Miss Morrow's
I want to switch to the
Merrill bonuses, the individual names.
You
10
were saying you don't know anyone on here.
11
believe your testimony is -- correct me if
12
I'm wrong -- the only bonuses you would
13
personally be aware of for 2008 would be
14
direct reports to you, and they all got zero. THE WITNESS:
15 16 17
I
I may know somebody on
there. MR. LAWSKY:
You can't match them up --
18
you can't match their bonus.
19
top investment banker, could you tell me what
20
bonus he got?
21 22 23
THE WITNESS:
If I named your
I couldn't tell you where
he was on that. MR. CORNGOLD:
Does Bank of America have
24
a policy with its employees that the
25
employees are required to keep their
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Page 138 K.L. Lewis
1 2 3 4 5 6
compensation confidential? THE WITNESS:
I don't know if we do or
we don't. MR. CORNGOLD:
of Bank of America at various banks for --
7
THE WITNESS:
8
MR. CORNGOLD:
9 10
You've been an employee
Almost 40 years. Are you aware of any
policy ever that you were instructed to keep your compensation confidential?
11
THE WITNESS:
12
MR. CORNGOLD:
13
MR. LIMAN:
14
MR. CORNGOLD:
15
it was publicly recorded.
16
you ever signed a confidentiality agreement?
17
That I was? Yes.
As an employee.
His is publicly recorded.
THE WITNESS:
I mean previous to when
No.
I'm asking have
I would think I was
18
supposed to keep my compensation
19
confidential.
20
MR. CORNGOLD:
Have you ever given
21
anyone instruction to keep their compensation
22
confidential?
23
THE WITNESS:
24
MR. CORNGOLD:
25
No. In the 40 years that you
have been at Bank of America?
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Page 139 K.L. Lewis
1 2
THE WITNESS:
3
MR. CORNGOLD:
Not that I recall. Have you ever
4
participated in negotiating bringing in
5
people from another bank to Bank of America?
6
THE WITNESS:
7
MR. CORNGOLD:
Yes. And have you ever
8
negotiated compensation with the person that
9
you were bringing in from another bank? THE WITNESS:
10 11
Yes.
But it was a long
time ago. MR. CORNGOLD:
12
Today, in the last three
13
years, you don't participate in bringing in
14
high-level people to Bank of America for
15
negotiations? THE WITNESS:
16 17
Yes.
But I wouldn't be
talking about compensation. MR. CORNGOLD:
18
You would discuss with
19
other people at Bank of America what
20
compensation you should offer?
21
THE WITNESS:
22
MR. CORNGOLD:
Yes. And when you make those
23
discussions, are you generally aware of
24
compensation that they are receiving at other
25
banks?
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Page 160 K.L. Lewis
1 2
MR. LIMAN:
3
MR. LAWSKY:
Why don't you wait and see? I just want to put one
4
thing on the record.
I just want to tell Mr.
5
Lewis, I think you're making a big mistake by
6
not turning over the list to us.
7
be direct about it.
8
worth, we have agreed to accept that list
9
under the terms of the judge's temporary
I want to
For what my opinion is
10
order, which means it will be held
11
confidential.
12
see no valid basis for not turning it over to
13
us.
14
giving you a subpoena.
15
not that way, so I would ask you maybe on
16
your flight home or whenever, to reconsider
17
and think about that because I think it would
18
be a much better route to go down.
19
It's important to us, and we
That's why we went to the next step of
THE WITNESS:
We prefer to do this
The only thing that I'm
20
concerned about is our associates.
21
it be a pretty big violation of trust to
22
invade somebody's privacy like that?
23
MR. CORNGOLD:
Wouldn't
Either a court is going
24
to rule finally that the materials should be
25
kept confidential or it shouldn't.
If the
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Page 161 K.L. Lewis
1 2
court rules that they should be kept
3
confidential, we're just delaying it.
4
court rules not, we're also just delaying it.
5 6 7 8 9
MISS LAWSON:
Why don't you just agree
to a confidentiality agreement? MR. CORNGOLD:
Because we think it
doesn't need to be kept confidential. MISS LAWSON:
You think it would be
10
appropriate to publish those names and
11
incomes in The Wall Street journal?
12
If the
MR. LAWSKY:
I didn't want to invite a
13
debate on this right now.
14
opinion.
15
directly to think about it.
I appreciate your
I just want to urge Mr. Lewis
16
THE WITNESS:
That's my only issue.
17
(Page break for jurat.)
18 19 20 21 22 23 24 25 U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit E
-------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-------------------------------------------------
EXAMINATION of ANDREA SMITH, taken at State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 12, 2009 at 2:10 p.m., pursuant to a Subpoena, before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 30 A. Smith
1
MISS ANDREADIS:
2
Or whether she was
3
aware that that was a consideration.
4
A.
That was not a deciding factor when Mr.
5
Thain and I were looking at the organizational
6
alignment.
7
so, Here's commercial banking that will now be a
8
division reporting to you, Mr. Thain.
9
Darnell was the man that ran that.
It was focused around the businesses,
David
Here is the
10
skill set that he has.
11
that particular skill set that we should evaluate,
12
or should David Darnell be the person running that
13
business?
14
Q.
Are there other people with
In addition to this working with Mr.
15
Thain, did you have any role with respect to the
16
allocation of Merrill Lynch's 2008 incentive
17
compensation?
18 19 20
A.
I did not have a role in the allocation
process. Q.
Were you updated frequently, or were you
21
made aware of the process at all?
22
knowledge of the process?
Did you have any
23
A.
I did have knowledge of the process.
24
Q.
Okay.
25
Let's start with your first
knowledge of the process.
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Page 31 A. Smith
1 A.
2
The first knowledge I had about the
3
process that they were going to use was in the
4
first half of November, which was when I discovered
5
that they were going to be paying out prior to the
6
1st of the year. Q.
7
So prior to November 2008, describe even
8
in general any type of knowledge that you had.
9
you have any type of knowledge at all other than
10
they were Merrill Lynch bonuses going to be paid
11
out?
12
A.
Did
I believe that the end of October or the
13
1st of November I had a conversation with Mr. Thain
14
around how much the incentive accrual was in their
15
financial plan, and at that time he told me roughly
16
$750 million dollars a quarter, and so I said,
17
"Okay, then $3 billion would be the starting point
18
of your incentive accrual," and he said, "We'll
19
need more than that."
20
Mr. Alphin, and that's when I learned that there
21
was an amount that had been talked about in the
22
merger deal.
23
Q.
And then I was talking to
So going back to when Mr. Thain told you
24
about the approximately $3 billion and he said he
25
needed more, could you please describe that
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Page 42 A. Smith
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intimated that it would.
3
still didn't know there had been a meeting
4
prior to Mr. Alphin and Mr. Thain speaking. MR. MARKOWITZ:
5
At that point, we
By the time of your
6
debriefing -- let me ask it in a different
7
way.
8
met that he just had this call?
9 10
Did Mr. Thain tell Mr. Alphin when they
THE WITNESS: MR. MARKOWITZ:
He did not. And did Mr. Alphin
11
express -- when did Mr. Alphin come to learn
12
about the call?
13
THE WITNESS:
When I found out about it
14
the next day and shared that fact with Mr.
15
Alphin.
16
MR. MARKOWITZ:
Did you get debriefed,
17
find out and call again?
18
sequence of events?
19
THE WITNESS:
What was the
Mr. Alphin debriefed me on
20
his conversation with Mr. Thain.
The next
21
day, in Charlotte, as I thought how are we
22
going to -- it's November 11th or 12th, and
23
based on the debriefing that Mr. Alphin gave
24
me on paying out in December, how in the
25
world are the Merrill Lynch people going to
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Page 43 A. Smith
1 2
do that?
So I'm going to call Mr. Thain's
3
current direct reports.
4
Fleming, "How are you all going to pay at the
5
end of December when you haven't even started
6
the process."
7
that we had a meeting?"
8
know."
9
And I said, "I haven't seen anything."
I called Greg
He said, "Did you not know I said, "I did not
He said, "Have you seen the minutes?" At
10
that time, Michael Ross, their Compensation
11
head, e-mailed that document, which then I
12
shared with our head of compensation, Mark
13
Behnke, and Steele Alphin.
14
MR. MARKOWITZ:
What was Mr. Alphin's
15
reaction when you let him know this call had
16
taken place?
17
THE WITNESS:
18
MR. MARKOWITZ:
19
THE WITNESS:
Surprise, I think. What did he say? I don't recall exactly
20
what he said, but I do recall giving him the
21
document.
22
MR. MARKOWITZ:
Was he upset?
Was it
23
the kind of thing he would have wanted to
24
know about before it happened?
25
THE WITNESS:
I don't know.
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Page 44 1
A. Smith
2
MR. MARKOWITZ:
Was there anything along
3
the lines of, We discussed all these things,
4
and Mr. Thain or John -- however you referred
5
to him -- didn't even mention that? THE WITNESS:
6
I don't recall that
7
specific conversation with Mr. Alphin when I
8
gave him the document, but I do recall with
9
Mr. Behnke, we had been been planning and
10
assuming a January time line for payout and
11
working quite closely with the Merrill Lynch
12
Compensation team; so this was big news for
13
us.
14
at Merrill Lynch hadn't shared that with Mr.
15
Behnke was annoying for all of us, quite
16
frankly.
17
And the fact that the Compensation team
MR. MARKOWITZ:
You have been through, I
18
take it, several of these processes of
19
allocating year-end bonuses before all of
20
this occurred; is that right?
21
THE WITNESS:
22
MR. MARKOWITZ:
23
been with Bank of America?
24
THE WITNESS:
25
MR. MARKOWITZ:
Yes. And how long have you
Almost 21 years. So you should have a
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Page 60 A. Smith
1 2
financial performance of the company. Q.
3 4
Did you ever discuss a specific number
with Mr. Thain or Mr. Alphin? A.
5
I did not discuss a specific number with
6
Mr. Thain, other than to say that I thought it
7
should be lower.
8
meeting with Mr. Thain, I don't recall that we
9
landed on a specific number, but I had shared the
10
$750 million a quarter accrual that Mr. Thain had
11
told me. Q.
12
With Mr. Alphin, prior to his
When you told Mr. Thain that you wanted
13
to get the number lower -- I know that you said you
14
didn't have a specific number in mind -- but was
15
there a range?
16
couple of million?
17
time?
18
A.
Did you want to take it down a What were you thinking at the
I just thought that, again, based on the
19
financial performance, that we should continue to
20
look for opportunities to bring that number down.
21
I did not have a firm number in my head or even
22
give him one.
23
the things I said is, comparable positions at Bank
24
of America will be getting paid much less, and
25
without going into name specific or anything, just
But as we talked about that, one of
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Page 61 A. Smith
1 2
to say I think it would be wise to use this process
3
as a way to get Merrill Lynch pay more aligned to
4
Bank of America.
5
Q.
What was his reaction to that?
6
A.
He generally thought that was a good
7
idea, and at the same time wanted to be fair to the
8
Merrill Lynch associates.
9
Q.
Can you expand on that little bit?
10
A.
For example, I recall using an example
11
of someone in a role at Merrill Lynch that got paid
12
three dollars, and that same role in Bank of
13
America would have gotten paid one dollar.
14
in order to -- as part of our going forward
15
integration, that I thought it would be wise to
16
begin to bring pay down, so that ongoing
17
expectation could be more in line when we reset
18
what pay levels would be than having a giant gap
19
between what they had been paid and what I thought
20
the new pay schedule could look like in Bank of
21
America.
22 23 24 25
Q.
So that
Were those conversations ongoing after
the November 11 and 12 time frame? A.
Yes.
That's really when they started in
earnest.
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Page 67 A. Smith
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attended the shareholder meeting on December
3
5th. MR. MARKOWITZ:
4
Again, could you explain
5
a little more what these particular meetings
6
were that week? THE WITNESS:
7
That week, as I recall,
8
the Merrill Lynch team was going through
9
their final recommendations of year-end
10
incentives, and I had told John that I
11
thought it would be a good idea -- because I
12
did the examples that I just gave you,
13
different roles and potential price points,
14
and he agreed that that would be a good idea.
15
So that week I met with Greg Fleming, and,
16
again, I didn't know the Merrill Lynch
17
people, but I just used illustrative
18
positions and pay to say you know these
19
people; you've been running this business.
20
Let me try to give you some context of what
21
similar roles would be paid at Bank of
22
America.
23
sat down with Peter Kraus who showed me sort
24
of -- with Michael Ross -- here were the
25
pools.
I did that with Greg Fleming.
I
And during that week, Mr. Thain asked
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Mr. Fleming to take down his pool under $100
3
million.
4
Q.
5 6
Did you learn that from Mr. Thain or
through Mr. Fleming? A.
I learned that from Mr. Kraus who told
7
me Mr. Thain was trying to get in touch with Mr.
8
Fleming, and I, in fact, was going to Mr. Fleming's
9
office to do the review I just described.
So Mr.
10
Kraus told me Mr. Thain had not connected with Mr.
11
Fleming.
12
Mr. Thain is calling?"
13
Fleming Mr. Thain is calling, "and the reason he's
14
calling you is to actually bring your pool down
15
under $100 million."
16 17 18 19 20
He said, "Would you mind just telling him I did, in fact, tell Mr.
MR. MARKOWITZ:
Did you have any
understanding as to why Mr. Thain did that? THE WITNESS:
No.
Because I did not
talk to Mr. Thain at that point. MR. MARKOWITZ:
When you were meeting
21
with these various executives and giving them
22
the feel for different types of people,
23
different types of positions at Bank of
24
America, were they reciprocating and saying,
25
Okay, if this type of banker at Bank of
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Page 86 A. Smith
1 2
specific day. MR. MARKOWITZ:
3
Did you come to learn
4
that anyone at Bank of America considered or
5
contemplated that the Merrill Lynch bonus
6
pool should be further reduced in light of
7
the fourth quarter losses at Merrill?
8
THE WITNESS:
9
MR. MARKOWITZ:
I don't know. Would there be anyone
10
besides yourself and Mr. Alphin who would
11
have been the people to have those
12
conversations?
13
THE WITNESS:
14
MR. MARKOWITZ:
Not to my knowledge. Was anything put in
15
place with respect to the bonuses -- well,
16
let's see how the quarter is going, so we can
17
appropriately set the year-end bonuses? THE WITNESS:
18 19 20
I'm sorry.
At Merrill
Lynch. MR. MARKOWITZ:
Well, with respect to
21
your role in the Merrill Lynch bonus
22
allocation, did you ever say, Hey, we should
23
set up something so we can take a look at
24
what Q4 looks like to make sure we got the
25
year bonuses right?
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit G
------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
------------------------------------------------------
EXAMINATION OF JOHN D. FINNIGAN, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 3, 2009 at 10:00 a.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 39 J.D. Finnigan
1 2
determination at a board meeting in the middle of
3
January and pay out sometime thereafter.
4 5 6
Q.
Why would it be in January?
Why
wouldn't it be in the previous year? A.
Because Merrill traditionally determined
7
bonuses and paid them out after their calendar year
8
results were available.
9 10 11 12 13
Q.
Is that to get a better understanding of
the firm's financial performance? A.
It seemed consistent with the fact that
bonuses are based on calendar year performance. Q.
You mentioned a few seconds ago some
14
sleuthing around in trying to get compensation.
15
Can you just elaborate on what --
16
A.
Our HR people would see what they could
17
find out from other HR people and see what they can
18
find out from their executive compensation
19
consultants.
20
stock award was and come up with some estimate of
21
where they thought the people
22
wasn't 100 percent precise.
23
performance of the firm was versus the prior year.
24
There were always rumors on the Street about --
25
Q.
They would take a look at what the
would come out.
It
You also knew what the
Rumors on the Street about what?
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1 2 3 4
Q.
So when did John Thain come to you and
ask you to move up the bonus payments? A.
We had a meeting of the management
5
Compensation Committee on November 11.
6
a timetable of how we would pay bonuses for the
7
year in view of what he anticipated to be a
8
year-end merger.
9 10 11
Q.
He set out
And what was your reaction to Mr.
Thain's proposal? A.
As a practical matter, if we were going
12
to close at year end and the committee was going to
13
make the determinations, then the committee had to
14
make the determinations in December.
15
Q.
Was there any resistance by you or any
16
other members of the committee paying out before
17
the end of the year?
18 19
A.
No.
I don't remember any.
MR. MARKOWITZ:
Was it your
20
understanding that Merrill Lynch had an
21
obligation to finalize its bonus payments
22
before the merger was completed?
23
THE WITNESS:
My understanding was the
24
merger agreement provided for Merrill Lynch
25
to award bonuses in 2008, so it was Merrill
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Page 52 J.D. Finnigan
1 2
company.
3
Q.
What else happened on this November
4
11th -- was it a call with the Compensation
5
Committee and with Mr.
Thain?
6
A.
Yes, it was.
7
Q.
Was it a scheduled meeting?
8
A.
No.
9
I think the original intent of the
meeting was for Rosemary Berkery, general counsel,
10
to bring the committee up to speed on the request
11
from your office and Congressman Waxman on what had
12
occurred, and John then suggested while we're
13
having the meeting that he'd like to add to the
14
meeting an agenda or two.
15
and two was he brought us up to date on the
16
proposed bonus accruals for the year.
17 18 19
Q.
One was the timetable,
Do you recall what the proposed accruals
were at that time? A.
From reading the document it looks like
20
they were about what they were on December 8, the
21
final accrual numbers.
22
Q.
Who's Rosemary Berkery again?
23
A.
General counsel.
24
Q.
And what do you recall that she
25
mentioned regarding --
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 159 J.D. Finnigan
1 Q.
2
Mr. Finnigan, a few minutes ago you
3
referenced in regard to TARP money a line of
4
credit.
5
A.
Could you elaborate on that for a moment? I'm not an expert on this.
We reserved
6
the right to access $10 billion of TARP money in
7
case the deal didn't go through.
We never received
8
any money, and we never took it.
I think Bank of
9
America ultimately took our allocation.
10
expert on TARP.
11
end.
12 13 14
Q.
I'm not an
We didn't get any money in the
But you had access to it; is that
correct? A.
I think it was provided to us in terms
15
of the commitment.
16
to take it, but we did reserve the right to $10
17
billion in case -- I don't think we caveated the
18
reservation this way, but in case something
19
happened to the deal we didn't want to give it up.
20
Again, that's an exact recollection of what
21
happened.
22
Q.
I think that we never intended
Were there any discussions or board
23
meetings about accessing the line of credit between
24
October to the end of the year?
25
A.
No.
I think every intention was, I
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit H
-----------------------------------------------------------------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
-----------------------------------------------------------------------------------------------------------------
CONTINUING
EXAMINATION of STEELE ALPHIN, taken
at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 4, 2009 at 11:00 a.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 28 S. Alphin
1 2
company, and then we would look at how we retain
3
those people through compensation or other ways,
4
and that's going to be compensation to even
5
guarantees -- which we didn't do, but that's done
6
in the industry.
7
Q.
Just discussing for a moment with regard
8
to the aggregate bonus pool, let's talk about the
9
segment of the discretionary portion of that pool.
10
What was your understanding of what you and Andrea
11
Smith could do in that regard in your discussions
12
with Merrill Lynch?
13
A.
Zero.
They could spend all of it.
14
Q.
That was your understanding, that you
15
were not permitted to make any suggestions or
16
recommendations?
17
A.
We can't.
18
Q.
What was your understanding of the right
19 20
to confer coming out of the merger agreement? A.
That I can consult, advise and discuss,
21
but, ultimately, John Thain and his directors had
22
full authority to pay any monies that would be paid
23
for the performance.
24 25
MR. MARKOWITZ:
Could you tell Mr. Thain
-- did you think you were able to tell Mr.
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Page 71 S. Alphin
1 2
leader would.
I think that's a normal
3
leadership trait.
4
normal for a person to think that in that
5
manner. MR. LAWSKY:
6
I think that would be very
Since you raised it, let's
7
talk about Mr. Thain's own bonus for himself.
8
I know, and we think you'll agree, it's an
9
evolving process over several months.
10
maybe you tell us, as you recall that
11
evolution, the first time you have a
12
REDACTED
discussion with him.
So
At one point it was
13
then it's
, then it's
.
14
take us, your best recollection, from the
15
beginning of your hearing about his desire
16
for a bonus for himself.
17
THE WITNESS:
Why don't you
If you give me latitude
18
about specific dates because, as I mentioned
19
before, this was an ongoing dialogue that I
20
would have with John about this issue.
21
MR. LAWSKY:
And to the extent you can,
22
if you can even ballpark it for us, it would
23
be helpful.
24 25
THE WITNESS:
,
That's fair.
The first
time I ever met with John, we talked about
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Page 72 S. Alphin
1 2
compensation -- which would have been very
3
soon after the actual deal -- and the
4
conversation then was around no one has a
5
change of control agreement; that's good.
6
What are your expectations; what are your
7
thoughts on Greg Fleming, Bob McCann and
8
others? MR. LAWSKY:
9 10
Who was saying that, you or
Thain? THE WITNESS:
11
I'm asking John that.
12
these are key people, how do we keep them
13
here?
14
talked about Fleming, McCann, and then John
15
said, And myself, I would expect to be paid
16
-- the exact comment was this:
17
going to pay me somewhere around
18
this year," and my comment was
If
And then, during that dialogue, we
" and then it was
"My board is
REDACTED REDACTED
REDACTED
That led into the
22
conversation of, "John, going forward in our
23
company, that's not the type of pay you
24
should expect if you want to consider a role,
25
that's not what it's going to be; that's not
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Page 73 S. Alphin
1 2
our philosophy paying" -MR. LAWSKY:
3 4
Was this all in the first
conversation? THE WITNESS:
5
Yes.
This was a long
6
conversation in his office.
I'll try to
7
change when I go to the next conversation.
8
said, "That's not our philosophy, and we
9
won't do that."
I
The comment to me was,
10
"Well, I really think I'm worth that; I think
11
I've done exactly what my board asked me to
12
do.
13
I have delivered a $29-or-so stock price to
14
the shareholder.
15
firmly believe that John believes that; in
16
his mind he believes that's what he did.
17
said, "I can't make that decision; that's not
18
my decision to make.
19
going forward that's not the type of
20
compensation your going to see if you want to
21
be part of Bank of America, particularly next
22
year which is probably going to be a very
23
difficult year."
I tried to clean up problems there, and
I've done my job."
I
I
But I can tell you,
I said,
REDACTED
REDACTED -- just as a
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Page 105 S. Alphin
1 2
Andrea Smith communicate to you that she had
3
been telling John Thain about the timing? THE WITNESS:
4
She really didn't because
5
she communicated to me she and John were
6
continuing to have dialogue about taking the
7
gross amount down, but we did not talk
8
anymore about the changing of the timing.
9
considered that a decision made; the decision
10
was not ours; it was within the boundaries of
11
the agreement, and our only approach there
12
was let's make sure we try to get the amount
13
paid looked at critically or as hard as we
14
could.
15
That's what we did. MR. MARKOWITZ:
Did you ever let Mr.
16
Thain know that you're unhappy with this
17
decision with respect to timing?
18
We
THE WITNESS:
I expressed my concern of
19
what was going on, and I said, "I think these
20
things, if we do this, this will force us to
21
deal with some of these issues."
22
MR. MARKOWITZ:
I want to switch back
23
gears a little bit and ask about some of the
24
conversations we had earlier about Mr. Thain
25
seeking a bonus for himself.
Did there come
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Page 106 S. Alphin
1 2
a time when you told Mr. Thain that if he
3
were to seek a bonus for himself then he
4
wouldn't be in line or be considered to
5
succeed Ken Lewis?
6
THE WITNESS:
I told John that if he
7
were paid more than Ken, that our board would
8
clearly look at it as an aberration, and that
9
he should be aware of that and have a sense
10
of -- I told him, I said, "John, you have
11
public problems -- you already see that --
12
and this could potentially create a problem
13
with our board." MR. MARKOWITZ:
14
Understood.
But did you
15
go the next step and say, If you do this
16
there would be no chance of you to be able to
17
succeed Ken Lewis at Bank of America? THE WITNESS:
18 19 20
I don't recall telling him
that. MR. MARKOWITZ:
How about some other
21
kind of consequence, like there wouldn't be a
22
future for you at Bank of America?
23
THE WITNESS:
No.
Because, at that
24
point, I still thought there was a future for
25
John in the bank.
What I expressed to John
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Page 107 S. Alphin
1 2
was that our board would view that he had a
3
bigger divide to go over to become more of a
4
commercial -- having a commercial view on
5
compensation.
6
company we don't pay people for the merger.
7
Ken's never been paid for a merger the year
8
it's done or in advance.
9
you would be paid when this is successful,
10
Because I told John, "In our
So in our company
when the shareholder benefits from it." MR. MARKOWITZ:
11
Is this the strongest on
12
any of these issues that you pushed back,
13
sort of the statement along the lines if you
14
end up getting paid more than Lewis it's
15
going to be viewed as an aberration by the
16
board?
17
THE WITNESS:
18
MR. MARKOWITZ:
Yes. Did you ever consider
19
kind of taking that approach with respect to
20
the timing issue?
21
THE WITNESS:
I didn't because that was
22
a decision that was made by the board within
23
the legal parameters of the agreement.
24
was more simply advice that I was trying to
25
offer him as his HR executive.
This
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Page 117 S. Alphin
1 2
some point prior to October 31.
3
MR. LAWSKY:
4
THE WITNESS:
5
MR. LAWSKY:
6
That's the conversation
THE WITNESS:
That's correct.
That's
just a retention conversation at that point. MR. LIMAN:
9 10
Yes.
where you bring the retention?
7 8
Right around there.
That's the conversation
where it's off the table.
11
THE WITNESS:
12
MR. LIMAN:
Yes. Prior to October 31, at some
13
point proximate to but prior to.
14
Q.
Did you ever discuss with John Thain
15
incentive compensation with regard to individual
16
employees?
17
A.
He did dialogue with me about what he
REDACTED
was thinking about
19
They were the only two -- oh, excuse me, and
20 21 22
REDACTED Q.
and
REDACTED .
18
.
And when was the initial discussion with
Mr. Thain in this regard?
23
A.
That would have been in November.
24
Q.
And those discussions continued through
25
the early part of December, as well?
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Page 118 S. Alphin
1 2
A.
They did until there were some form of
3
recommendations, or until their board decided not
4
to pay John and the other executives.
5
Q.
6
discussions.
7
was it at that point that Mr. Thain raised
In terms of the initial discussion,
REDACTED
8
11
And if you can take us through those
A.
What John expressed to me was what they
12
had been paid in previous years, and they were
13
important; we needed to retain both of them at that
14
point, and that we had to be somewhere close to
15
that, he felt like, to keep them on the team going
16
forward.
17
Q.
When you're saying
--
REDACTED
18 19 20 21 22 23 24 25
Q.
Do you recall -- strike that.
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Page 119 S. Alphin
1
What were the figures that Mr. Thain was
2 3
discussing with regard to Mr. Fleming an Mr.
4
McCann?
5
A.
6
REDACTED
7
number.
8
Q.
9
In the
REDACTED
--
REDACTED
-- we never talked about a specific
Did you discuss any other individual
employees in terms of their bonuses with Mr. Thain?
10
A.
I didn't.
11
Q.
Do you know if Andrea Smith did?
12
A.
I do not know as a fact if she did or
13
to
she didn't. Q.
14
When you say "as a fact," do you
15
generally have a sense of whether or not Andrea
16
Smith did have that discussion? A.
17
I believe that in the role I asked her
18
to fulfill, yes, they would have had dialogue about
19
that.
20 21 22 23 24 25
Q.
Did you ever ask Andrea Smith whether or
not she had dialogue -A.
No. MR. LAWSKY:
When you talk about the
REDACTED
, did you know
it then and you don't recall it, or you never
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Page 128 S. Alphin
1 2
at.
I looked at monthly and quarterly
3
forecasts.
4
the forecast for the fourth quarter was
5
supposed to be.
6
information I have would have been a general
7
dialogue from Andrea or from people in the
8
business.
9
going what the marks were and what the trade
At Merrill Lynch I only saw what
So really the only
But looking at a document and
10
losses were, I don't receive those documents;
11
I don't look at them. MR. LAWSKY:
12
Did you ever hear in
13
December of any particular positions that
14
Merrill had that created particular problems
15
within Merrill's financial health in
16
mid-December? THE WITNESS:
17
I did not hear of a
18
specific mark or a specific trade or a
19
specific piece of business. MR. MARKOWITZ:
20
No, I did not.
Did you ever learn
21
during the fourth quarter in December that
22
things started to worsen? THE WITNESS:
23
I did.
A few days before
24
our December discussion with our board about
25
the
REDACTED
, Ken expressed to me
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Page 129 S. Alphin
1 2
that the numbers were deteriorating faster
3
than he'd ever seen, and he said they've gone
4
much past the $8 billion to $9 billion in
5
losses.
6
mid-teens. MR. MARKOWITZ:
7 8
At that point, they were in the
So you learned about it
from Ken Lewis? THE WITNESS:
9 10
MR. MARKOWITZ:
12
THE WITNESS:
13
MR. MARKOWITZ:
15
THE WITNESS:
Yes.
REDACTED
Yes.
REDACTED
A day or two before we had
16
that phone call, that fourth phone call.
17
Part of the challenge is, we have a board
18
call every Friday -- we had for several
19
months -- what are the conditions of the
20
market place.
21
would have been in the December -- soon after
22
it.
23
really started after the second week.
24 25
That's the challenge.
But it
It would have been -- deterioration
MR. MARKOWITZ:
How did you learn about
the MAC?
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Page 139 S. Alphin
1
MR. MARKOWITZ:
2 3
if I understand, reports to you.
4
THE WITNESS:
5
MR. MARKOWITZ:
6
9
That's correct. Is there a particular
person in HR whose role that would be? THE WITNESS:
7 8
But the Comp function,
Mark Behnke runs that for
us. MR. MARKOWITZ:
Do you have an
10
understanding of how or whether when bringing
11
over talent from a competitor firm if Bank of
12
America gets information about what they were
13
making at the competitor firm?
14
THE WITNESS:
Yes, we do.
We ask --
15
sometimes we ask for the last year's W-2 --
16
and we have some sense of the market because
17
in this role, like all financial services,
18
there is some sense of what MDs would make;
19
associates would make; VPs would make;
20
bankers would make.
21
specific than that -- and, typically, we ask.
22 23 24 25
We try to get much more
MR. MARKOWITZ:
And do people typically
give it when you ask? THE WITNESS:
Interestingly enough, most
of them do.
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Page 140 S. Alphin
1
MR. MARKOWITZ:
2
With respect to your
3
sense of the market, how do you get a sense
4
of what the market is worth? THE WITNESS:
5
From people we lose who go
6
to a competitor at certain rate of pay and
7
whatever instruments to hook or retain them,
8
and also the intelligence we get just from
9
the various comp analysis we do on an annual
10
basis.
11
lot from head hunters also.
12
firms can tell you that these are the things
13
that are occurring. MR. MARKOWITZ:
14 15
Those are the two primary.
THE WITNESS:
17
MR. MARKOWITZ:
19
The head-hunting
And do you have direct
contact with those?
16
18
You get a
Personally, I do not. Would that be Mark, as
well? THE WITNESS:
Most of that would be Mark
20
Behnke and Rick Parsons, who runs our
21
recruiting function for the company.
22
MR. MARKOWITZ:
When people leave and
23
they decide to go elsewhere, do they share
24
with you what their new comp structure is?
25
THE WITNESS:
Some do.
We like to have
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Page 164 S. Alphin
1 2
judgment that he thought was the best way to
3
uphold.
4 5 6
MR. MARKOWITZ:
How much in losses would
it cause you to decide to lower the pool? THE WITNESS:
I don't know how to answer
7
that question because my overriding the
8
position would always be this:
9
all the people the losses will be even
If you lose
10
greater.
11
they're being managed, but if you lose the
12
people the losses would be greater.
13
have to turn around and hire people and
14
probably hire them with a guarantee, so the
15
costs to the company would have been even
16
greater.
17
No matter what they are at least
MR. MARKOWITZ:
Then you
So you would have gone
18
with the Merrill Lynch I bank offer over the
19
Bank of America model after post merger.
20
THE WITNESS:
I would have used that to
21
get to one company, yes.
22
company and managing the company the way we
23
manage it, we would ultimately end up with a
24
Bank of America approach as transition, as I
25
mentioned earlier today.
But after one
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Page 165 S. Alphin
1
MR. MARKOWITZ:
2 3
in 2008 numbers or the next year? THE WITNESS:
4 5
Would that have occurred
Forward looking, '09 and
'10. MR. MARKOWITZ:
6
Is there a threshold of
7
when that crosses, when the numbers have to
8
be reflected regardless of the desire to keep
9
people? THE WITNESS:
10
Even in our company we
11
missed our numbers, but we still paid our
12
best performers in key roles; we still paid
13
them.
14
think in this industry, you always have to
15
pay people to retain them as long as there
16
are options to do other things.
17
what we're seeing today.
18
I think in the marketplace, and I
MR. MARKOWITZ:
And that's
It sounds to me like
19
there's a difference between zero, which is
20
what the top five execs took and whatever
21
bonuses people were doled out, and a number
22
between zero or somewhere between zero and
23
what they got.
24
numbers have caused you post close would
25
additional losses to try to further reduce
The question is, would the
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit I
--------------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
--------------------------------------------------------
GREG FLEMING, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 5, 2009 at 12:00 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 67 G. Fleming
1 2
there was that it would be no bigger than 2007, and
3
that would be the ceiling, and Bank of America
4
would have -- we would run the process, and they
5
would consult with us but would be actively
6
involved, and the color was they were going to be a
7
significant part of this, but we would run it.
8
Q.
This is you and Curl?
9
A.
Me and Curl.
10
Q.
Who else is in the room for that
11 12
discussion? A.
I think the only people in the room for
13
price, retention payments for FA's and for bonuses
14
are Curl and me. MR. POLKES: It's reflected in the deal
15 16
docs.
17
Q.
On this point, when you discussed the
18
pool over this weekend was there a discussion of
19
the timing of either setting the bonuses or paying
20
out the bonuses?
21
A.
No.
Dave, you have to remember, Sunday
22
afternoon I was on fumes.
23
major issues only.
24
timing.
25
Q.
We were dealing with
So I recall no discussion on
Are those the three points:
Price,
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit N
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
CONTINUING
EXAMINATION of JOHN ALEXANDER THAIN,
taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on February 24, 2009 at 4:30 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 202 J. A. Thain
1 2
A.
Morgan Stanley.
3
Q.
Who initiated the recruitment of
4 5 6 7 8
REDACTED A. contact. Q.
At what point did it sort of get to your
level?
9
A.
10
coming.
11
Q.
12
I don't remember who made the first
When she was seriously considering
At the point it got to your level, had
there been a salary offer made to
REDACTED
13
A.
I don't remember.
14
Q.
Did you participate in the negotiation
15
of the salary for
REDACTED
16
A.
I don't recall specifically.
17
Q.
In those conversations, did
18 19 20 21 22 23 24 25
REDACTED
disclose what she had been making? A.
She would have disclosed that to our HR
area prior to making an offer. Q.
And what is the purpose of that?
Why
would she tell your HR what she was making? A.
So that we can gauge how our offer
compared to what she was currently being paid. Q.
Is there any aspect of that with respect
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Page 216 J. A. Thain
1 Q.
2
So if Morgan Stanley recruited -- before
3
we used the example of you recruiting someone from
4
Morgan Stanley.
5
you were there, was trying to recruit one of your
6
guys, and they say "How much are you making?"
7
they say, "I was making ten dollars."
8
be a problem with Merrill Lynch? A.
9 10
Let's say Morgan Stanley, while
I said I don't remember.
And
Would that
I don't know
if that's part of the policy or not. Q.
11
But you have an understanding that
12
that's what happens in the industry routinely,
13
correct, that people do disclose that?
14
A.
Yes.
15
Q.
I guess I'm curious, if it's such
16
proprietary information, why wouldn't there be
17
policies set in place at Merrill Lynch prohibiting
18
employees from disclosing information? A.
There might be.
21
Q.
Who would know?
22
A.
Either the Legal Department or the HR
19 20
23 24 25
I just said I don't
know.
Department. Q.
But even if there was one, it sounds
like no one would be enforcing it; is that right?
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Page 217 J. A. Thain
1 2
A.
I don't think that's necessarily true.
3
Q.
Are you aware of any time when someone
4
left, and there was a discussion of "Oh, they told
5
our Competitor X what they made, so we're going to
6
sue them under some provision"?
7 8 9
A.
I'm not aware of any such circumstances. MR. CORNGOLD:
You've been in the
industry at various levels for many years.
10
Are you aware of ever being under any rule or
11
any instruction at any of your employers
12
where you were not allowed to disclose your
13
compensation?
14
THE WITNESS:
I believe -- although I'm
15
not certain in the case of Merrill -- I
16
believe that many firms have provisions that
17
are intended to keep compensation
18
confidential.
19
MR. CORNGOLD:
I'm not asking a
20
hypothetical question; I'm asking a specific
21
question.
22
through your resume, but at any time when you
23
were not a Section 16 employee, are you aware
24
of being under any rules where you were not
25
allowed to disclose your compensation?
When you were -- we haven't gone
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 249 J. A. Thain
1 2
someone got such a high payout, shows up and
3
then goes off to Hawaii?
4
THE WITNESS:
5
specifically. MR. LAWSKY:
6 7
But you're saying there was
chatter somehow about this. THE WITNESS:
8 9
No one said that to me
I believe it was reported
in the press, but no one said this
10
specifically to me.
11
MR. CORNGOLD:
Just to clarify.
REDACTED , t h e i n f o r m a t i o n
12
recruiting of
13
about his pay and stock, that came from
14
REDACTED , t o y o u r k n o w l e d g e , c o r r e c t , h i s REDACTED
15
?
THE WITNESS:
16
In your
Yes.
But he would have
17
documentation that he could produce to verify
18
that.
19
MR. CORNGOLD:
And your information
20
about what comparable people were making came
21
from Towers Perrin; is that correct?
22
THE WITNESS:
I don't recall if they
23
specifically provided.
I also had general
24
information about what the top trading talent
25
make on Wall Street.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 250 J. A. Thain
1
MR. CORNGOLD:
2
Was there other
3
information about his compensation at Goldman
4
that would have been useful to you that you
5
didn't have available? THE WITNESS:
6 7
that question.
10 11
Not that I know of.
(Recess was taken.)
8 9
I don't know how to answer
Q.
Could you describe the circumstances
that led to Mr. Kraus coming onboard? A.
Mr. Kraus is also a very senior, very
12
experienced person on Wall Street.
13
experience both in investment banking and in wealth
14
management, and he was brought onboard in a
15
strategy role with the expectation that he would be
16
very valuable in the wealth management and asset
17
management side of the business.
18 19 20
Q.
He has
Did you participate in setting or
discussing his salary? A.
I was part of discussing his
21
compensation package, but it was also eventually
22
approved by the Compensation Committee and the
23
board.
24
Q.
Where was he before Merrill?
25
A.
He was at Goldman Sachs.
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 251 J. A. Thain
1 2
Q.
What was the comp that was set for him?
3
A.
His total compensation package for 2008
4
was approximately
5 6 7
REDACTED
.
Q.
And how did you go about setting his
A.
It was a function of his prior
comp?
8
compensation levels and compensation levels for
9
comparable senior people of his experience and
10 11 12 13 14 15
ability. Q.
REDACTED
As to his
, did he
provide that to Merrill? A.
I'm not aware of what specific
documentation he provided. Q.
But did he let Merrill know, regardless
16
of what specific documentation, what he was making
17
a t REDACTED
18 19 20 21 22 23 24 25
A.
Yes. MR. LAWSKY:
Do you recall when he came
onboard? THE WITNESS:
I believe he started in
September. MR. LAWSKY:
And do you know why so late
in the year? THE WITNESS:
He also had a garden leave
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit O
------------------------------X EXECUTIVE COMPENSATION INVESTIGATION, ------------------------------X
120 Broadway New York, New York 10005 March 5, 2009 10:00 a.m.
EXAMINATION BEFORE TRIAL OF STEVE GOODMAN, the Witness herein, taken by the office of the Attorney General, pursuant to a Subpoena and held before Kimberly Dean, a Notary Public of the State of New York at the above-stated time and place.
Page 26 Steve Goodman
1 2
A.
There are compensation surveys in which
3
data is collected for a variety of companies and a
4
variety of industries and geographies.
5
date that she would be doing would be getting
6
survey data regarding HR functions at other
7
companies.
8
Q.
9 10
The survey
Do you know who that data is collected
from? A.
The data itself is collected directly
11
from the companies.
12
whoever that might be, they send surveys of their
13
own confidential to individual companies and they
14
collect the data that they get from individual
15
companies and then they compile the overall data
16
for those companies to use.
17
Q.
So, the third party vendor or
If I understand this correctly, Bank of
18
America uses a third party who collects data from
19
other companies?
20
A.
That's my understanding.
21
not a compensation expert.
22
of how it works.
23
MS. ANDREADIS:
Again, I am
That's my understanding
Do you know if Bank of
24
America supplies these third party vendors
25
with information on Bank of America's
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 27 Steve Goodman
1 2
compensation as well?
3
A.
Yes, I would say so.
Again but because
4
I have never done the process myself, I don't know
5
for sure but I think that's part of the price for
6
admission so to speak.
7
admission, you pay for surveys.
8
the expectation is you will participate as well.
9 10 11
Q.
It's two prices for I think part of it
Do you know the name of any companies
that Bank of America has used to collect this data? A.
I know of companies we used in the past
12
but I would not want to guess the companies we are
13
using in the last year or two or three because it
14
may have changed.
15 16 17 18 19 20 21
Q.
The companies that you know of, when
were they last used? A.
That's what I'm saying.
I don't know
exactly when. Q.
What are the names of the companies you
are aware of? A.
If I think of a traditional compensation
22
companies, they are companies like McLoggin, Mercer
23
Consulting.
24
those were who we were using.
25
name the top accounting firms I could give you the
Again, to be honest, I don't know if If you asked me to
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 29 Steve Goodman
1 2 3
range or how is it presented? A.
Generally, by the time I have been
4
provided with information for my compensation
5
partner they have taken all sorts of data and
6
boiled it down into a summary that I can
7
understand.
8 9
In terms of the exact format that they get it in, I am not familiar.
In terms of in general, how
10
it could be boiled down for me?
11
be on job levels and ranges, yes.
12 13 14
Q.
It usually would
When you say job levels, is that just a
title or is it more with a description of the job? A.
It's pretty generic and that's the hard
15
part of using surveys, matching your job to the
16
survey.
17
specific to your kind of job code system.
18
to say, okay, if this company provides this survey
19
data for this job function, which of our jobs apply
20
to that.
21
these companies.
22 23
No survey will have data that's exactly We have
So it's pretty generic what you get from
CONT'D EXAMINATION BY PAMELA MAHON, ESQ. Q.
With regard to compensation, is
24
compensation included in this survey date that you
25
describe d?
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 30 Steve Goodman
1 2
A.
Yes.
3
Q.
In terms of compensation what level of
4 5
details is provided in these surveys? A.
Usually, in surveys, again, I'm seeing
6
it after the survey, so, at some point a
7
compensation expert will do a much better job of
8
explaining the output that's coming from the
9
consulting company.
By the time I look at it,
10
generally what I am looking at is what is the
11
median pay for a set of jobs.
12
percentile and the 75th percentile.
13
aspects.
14
Q.
What is the 25% Those sorts of
Have you ever received in it's original
15
form or based on the summary or analysis by
16
compensation experts at Bank of America, have you
17
ever received a survey data?
18
A.
I have reviewed survey data after it's
19
been boiled down to put into my terms.
20
once someone tried to show me something they got
21
from a consulting firm and because I'm not an
22
expert in statistics and regressions, it was too
23
much for me.
24
boiled down into something that's usable.
25
Q.
I remember
In all honesty, it always has to be
Who does the boiling down?
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 66 Steve Goodman
1 2 3
policies? A.
In a general level that there are too
4
many policies to remember them all.
5
refer to experts if I want to specificity around a
6
policy.
7
Q.
Certainly I
For example, this is a hypothetical, you
8
were considering terminating someone's employment
9
and you wanted to look up a specific provision, how
10 11
would you go about doing that? A.
I would call one of the centers of
12
expertise which specialize in employee relations
13
type of issues and I seek advise from that area.
14
Q.
Do you know if Bank of America has a
15
policy that requires it's employees to keep it's
16
compensation confidential?
17
A.
I can't site the specific policy.
I
18
would say that customer information and associate
19
information are considered sacred, literally.
20
There's significant instruction around both
21
customer and associate data privacy.
22
Q.
What is that significant information?
23
A.
That it can not be shared.
24
Q.
What documents are you referring to?
25
MR.CHEN:
You mean what kind
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 67 Steve Goodman
1 2
information is kept confidential or what
3
document is the policy contained in?
4
Q.
Both, well, my understanding from your
5
testimony is that associate information is sacred
6
as you said and I'm asking you were where in the
7
Bank of America policy is that a policy?
8 9
A.
It's laid out and there are compliance
training that we are required to take periodically
10
and as part of that compliance training there are
11
specific instructions around not providing
12
confidential data of any sort, customer or
13
associate.
14
Q.
The compliance training centers around
15
Bank of America policies, is that fair to say, you
16
are not going to have compliance training for not a
17
non-enforceable event.
18
specifically states that employee information
19
relating to compensation has to be confidential?
20 21 22 23
A.
Is there somewhere where it
I'm confident it's somewhere.
I can't
tell you exactly where. CONT'D EXAMINATION BY PAMELA MAHON, ESQ. Q.
The compliance training that you just
24
referred to, that's training for Bank of America
25
employees to not divulge another employees
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 69 Steve Goodman
1 2 3
CONT'D EXAMINATION BY VICKI ANDREADIS, ESQ. Q.
Do you know if Bank of America requires
4
it's employees to sign A confidentiality agreement
5
or any type of agreement with respect to keeping
6
their own compensation information confidential?
7
A.
I don't recall.
8
Q.
Have you ever instructed anyone at Bank
9 10
of America to keep their compensation information confidential?
11
A.
In 23 years?
12
Q.
Sure?
13
A.
I don't recall that I ever specifically
14
told an individual they could not share their own
15
information with someone else.
16
Q.
Do you know if Bank of America has ever
17
terminated anyone for disclosing their own
18
confidential compensation information?
19
A.
I don't know the answer to that.
20
Q.
Have you ever had to terminate someone
21 22 23 24 25
on that basis for disclosing their own? A.
I never terminated anybody for that
reason, personally. MS. MAHON:
In terms of not being
aware someone has been terminated for
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 70 Steve Goodman
1 2
revealing their own compensation
3
information, have you been made aware that
4
anybody has been terminated for that reason?
5
A.
No.
6
Q.
Mr. Goodman, do you participate in
7
No one made me aware of that.
recruiting people, HR executives?
8
A.
Yes.
9
Q.
Tell us a little bit about that process,
10 11
what goes into the recruitment process? A.
A lot.
First we identify what our need
12
is and we identify what skills and capabilities we
13
are looking for and then we will generally look
14
internally first to see if there is anyone capable
15
of moving.
16
to fill those roles.
17 18 19
Q.
If not, we go externally in the market
Let's talk about going externally, how
is that search done? A.
Many different ways.
Sometimes we do
20
searches through the Internet using various web
21
sites where people put resumes on the Internet.
22
Sometimes we will do different advertisements into
23
trade publications and we do a lot of networking
24
and talk to people who know people in various
25
companies and know people highly thought of and we
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 87 Steve Goodman
1 2
Q.
Have you ever had an employee advice you
3
that the reason they are leaving is to go make more
4
money somewhere else?
5
A.
Yes.
6
Q.
Have you asked that employee how much
7
money they are going to be making at other
8
companies or firms?
9
A.
I don't recall asking that question.
10
Q.
Have you ever had a discussion about the
11
compensation in hopes to perhaps match that
12
compensation?
13
A.
Going through 23 years here.
I don't
14
recall a specific conversation one way or the
15
other.
16
Q.
I don't recall a specific conversation. Do you recall any conversation when an
17
employee told you they were leaving to make more
18
money someplace else?
19 20 21
A.
I don't recall a specific conversation
but if I'm sure there was some dialogue after that. Q.
I will give you a hypothetical, tomorrow
22
you are conducting an exit interview for an
23
employee that has just resigned, during that
24
interview the employee tells you I'm leaving to go
25
to firm X to make more money, would you feel
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Page 88 Steve Goodman
1 2
comfortable during that discussion to ask the
3
employee what are you going to be making at firm X
4
or perhaps you want to see if you can match that
5
compensation and that is an employee you wanted to
6
keep?
7 8
A.
Asking me my particular practice for
that I would generally not ask that question.
9
Q.
Why would that be?
10
A.
People generally stay at companies where
11
they feel they can get the greatest amount of
12
growth and development in their career.
13
somebody chooses to leave a company at that time
14
I'm assuming they believe they can have a better
15
career somewhere else.
16
Q.
If
Your hesitation to ask such a question
17
is not based on Bank of America's policy that you
18
are not permitted to ask but it's your own personal
19
belief as to reason this person is leaving?
20 21 22 23 24 25
A.
I had not thought of it in terms of a
policy. Q.
Have you ever been advised you can't ask
an employee during an exit interview or discussion? A.
No. MS. ANDREADIS:
Mr. Goodman thank you
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
Exhibit X
---------------------------------------------------
IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA - MERRILL LYNCH
---------------------------------------------------
NEIL COTTY, taken at the State of New York, Office of the Attorney General, 120 Broadway, New York, New York, on March 4, 2009 at 5:00 p.m., before SARA FREUND, a Shorthand Reporter and a Notary Public of the State of New York.
Page 122 N. Cotty
1 2
get."
That's it.
3
Q.
And did she have any further response?
4
A.
Other than that's the decision that was
5
made by Merrill Lynch. Q.
6 7
that they're going to get paid? A.
8 9
What's the implication about the fact
Bank of America awards bonuses in
January, and, therefore, you get people working 150
10
percent during the holiday season when a lot of
11
people want to go skiing and take off.
12
bonuses in the envelope was in hand, a lot of them
13
might have said, Jeez, I don't need this stuff any
14
wore.
15
bonus when I needed them at the most critical time.
16
So I was outraged.
17 18 19
I'm out of here.
Q.
So if the
So they were awarded their
Did you talk to anyone at Bank of
America about your outrage? A.
I might have mentioned it to Bob Qutob,
20
who was on the transition team, to know what he
21
heard, and he confirmed it.
22
about it?
23 24 25
Q.
Did I talk to Joe
No. Did you express your concern about this
to anyone? A.
Bob, Wendy.
That's it.
No one else
U.S. LEGAL SUPPORT, INC. 1 PENN PLAZA, NEW YORK, NY 10119 Tel: 212-759-6014
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