I can't recall a case that shows how difficult a position corporate lawyers find themselves in these days than that of Bank of America.
Amid the allegations New York Attorney General Andrew Cuomo leveled against B of A's former CEO Ken Lewis and CFO Joe Price on Thursday is one that suggests Price violated the Sarbanes-Oxley Act by firing the bank's general counsel over a disagreement about what needed to be publicly disclosed about the pending Merrill Lynch acquisition.
According to Cuomo's complaint, Price fired the attorney, Timothy Mayopolous, when he pressed Price for more information about Merrill's losses prior to the deal's closing, because they were much larger than those already disclosed to shareholders and contradicted management's claims that the bank did not need capital assistance from the Treasury to complete the deal.
The law enacted in 2002 makes it clear that general counsels owe their duty to a company's shareholders, not to its managers, though the attorneys often report to senior managers instead of the board of directors.
But that's not how Price saw the corporate counsel's role at B of A, according to the filing.
"Mayopoulos sought out Price to discuss the increased losses, but was told that he was in a closed-door meeting and could not be interrupted," the complaint states. "The next morning, before he had a chance to address the increased losses, Mayopoulos was summarily terminated and escorted from the building on the spot."
Mayopolous was replaced by Brian Moynihan, who is now B of A's CEO.
Price's attorney told the Financial Times on Thursday that Cuomo's allegations were "utterly false."
Of course, Cuomo filed fraud charges based on the Martin Act, a New York state law, not SarbOx, which is a federal statute. And the Securities and Exchange Commission settled its case against B of A on Thursday. So the issue of the general counsel's precise legal duties may no longer be relevant to the outcome of the case.
Yet it shows how problematic the conflict of interest between managers and shareholders has become in a post SarbOx world. And it's likely to become harder for CFOs to find lawyers willing to put their interests before that of shareholders as a result.