Bank of America CEO Ken Lewis says he was pressured to rescue Merrill Lynch. Here’s what I think: The Secretary of the Treasury and the Chair of the Federal Reserve have taken an oath to uphold the Constitution and the federal laws. Among those laws is the obligation of management of publicly traded corporations to inform shareholders in a meaningful way of the risks attendant upon all extraordinary corporate activity, including major acquisitions.

The acquisition of Merrill Lynch by Bank of America was surely a major acquisition and an extraordinary corporate act. The President of B of A now tells us that the Secretary and the Chair told him not to inform his shareholders that Merrill Lynch was truly a risky investment. As it turns out, B of A paid $50 billion for an asset that was probably worth $37 billion.

The failure of the President of B of A to have engaged in due diligence with respect to Merrill Lynch and to have revealed the risks of the acquisition to shareholders, as the law requires, is an act of fraud and directly violates laws enforced by the SEC. As for Paulson and Bernanke, they were participants in a criminal conspiracy to defraud B of A shareholders. All three of them (Lewis, Paulson, and Bernenke) should be prosecuted.

If Lewis is charged with fraud, he will not be permitted to assert the defense of “The government told me to do it.”

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