Posted 7:12 PM by steve

Firing former Merrill Lynch CEO John Thain from his new position at Bank of America because of surprise losses at Merrill Lynch either doesn't go far enough... or it goes too far.

If BofA's position is that Thain knew that Merrill's losses were higher (or likely to be higher) and didn't disclose that relevant and material information to Bank of America during the course of the negotiations to sell Merrill to BofA, information that would have had a direct bearing on the amount BofA would be willing to pay for Merrill Lynch (if not scuttle the entire deal?), isn't that the textbook definition of securities fraud? If so, Thain ought to have the SEC and the Justice Department breathing down his neck.

Or if BofA is claiming that while Thain might not have had actual knowledge of the additional losses he should have known of and told BofA about those losses, then according to the theory pushed by the SEC and Justice Department in going after and jailing, among others, former WorldCom Chairman Bernie Ebbers, then that is also securities fraud and Thain ought to be packing his toothbrush and heading off to prison.

But if Bank of America isn't alleging that Thain knew of these additional losses, and if they are not alleging that he had a duty to know of those losses, then why are they forcing him out? Everybody knew that Merrill Lynch was in terrible shape and was desperately seeking to avoid going under like Lehman Brother. Is BofA jettisoning Thain because Merrill's accountants underestimated the extent of just how bad off Merrill was?