Bank of America's CEO Confronts a Crisis
Until this week, Bank of America Corp. was having a good year, with strong profits sending its stock to new highs and Chairman Kenneth Lewis getting credit for avoiding scandals and turning the bank into a money-making machine.
Now, the asset-management unit of the Charlotte, N.C., bank is accused of making backroom deals with a New Jersey hedge fund, and e-mails among the unit's top officials raise questions about its aggressive tactics to gain business.
The company's shares are off 4% since the bombshell announcement Wednesday morning by New York Attorney General Eliot Spitzer, a case in which Bank of America plays a leading role.
Mr. Spitzer, whose initial charges of stock-research conflicts at Wall Street firms led to a $1.4 billion settlement, maintains that Bank of America allowed a hedge fund called Canary Investment Management LLC special trading privileges. In short, Mr. Spitzer alleges in his complaint against the hedge fund, Bank of America allowed Canary, an investment pool for institutions and wealthy individuals, to buy and sell mutual-fund shares after the 4 p.m. Eastern time close of stock-market trading -- at the 4 p.m. price, providing opportunities to profit from late-breaking market-moving events that ordinary investors could only dream of. Bank of America, meanwhile, earned fees from loans to Canary and set its sights on other profitable business with the hedge fund and its manager's wealthy family, according to the complaint.
While the hedge fund's manager agreed to $40 million in fines and restitution without admitting or denying wrongdoing, Bank of America hasn't been charged and says it is cooperating with Mr. Spitzer.
In an interview Thursday, Mr. Lewis, who is also chief executive, said he would take swift action to get to the bottom of the accusations. He said that if the allegations are true and top bank executives were involved in tainting the bank's coast-to-coast brand, "Then they will have to go. Not only would I be furious about the actions, 134,000 of my teammates would be furious about the actions."
Mr. Lewis said he had formed an internal committee to investigate Mr. Spitzer's allegations. "We are working around the clock to make sure we get the facts," Mr. Lewis said.
Earlier this year, Mr. Lewis displayed his tough stance on conflicts of interest and wrongdoing by saying he was resigning from the board of Lowe's Cos. so his bank could do business with the home-improvement retailer without accusations of conflict of interest.
And in last year's annual report, he said, "We foster a culture of openness in which healthy debate is encouraged and associates are expected to blow the whistle on improper activity."
But if charges brought by Mr. Spitzer prove true, it now appears that, for a long while, no one blew the whistle inside the bank's asset-management business as it engaged in unusual deals with Canary Investment Management.
Interviews with people familiar with the asset-management business and a trail of e-mails released by Mr. Spitzer portray a division eager to win business. Mr. Spitzer's charges and exhibits also provide a rare glimpse into the asset-management world and Bank of America.
The e-mails released by Mr. Spitzer indicate that some top Bank of America executives knew, or were informed, about the unusual business deal that the bank had with the Canary hedge fund. The recipient of one e-mail that offered praise for the dealings with Canary was Richard DeMartini, the head of Bank of America's entire asset-management business, which has under management more than $300 billion in assets. Mr. Lewis hired Mr. DeMartini to increase revenue at the asset-management unit, which accounts for about 5% of the bank's total net income.
According to bank e-mails submitted by Mr. Spitzer, Bank of America's involvement with Canary began with an old-fashioned Wall Street practice -- the cold call -- pursued by a Bank of America broker named Theodore Sihpol III. According to bank e-mails, Mr. Sihpol and a person whose name is blacked out on the court exhibit, in 2001 began "a cold-calling campaign to establish a relationship with the Stern family." Edward J. Stern, managing principal of Canary Investment, is the 38-year-old son of pet-food and real-estate mogul Leonard Stern.
A person at Mr. Sihpol's home referred all calls to Bank of America. The bank isn't making anyone available to comment beyond Mr. Lewis. In an April 2001, two-page memo, Mr. Sihpol noted that the Stern family had a "total net worth of approximately $3 billion, & the 11th richest family in NYC." Mr. Sihpol explained that Edward Stern's hedge fund wanted to pursue its market-timing strategy -- a quasi day-trading strategy -- with Bank of America. In reaching the settlement over alleged illegal trading with Mr. Stern, Mr. Spitzer also alleged that Bank of America, and other big fund firms, had bent its rules to allow the hedge fund to dart in and out of its mutual funds.
Regarding the Stern family, Mr. Sihpol also said it was "worth noting ... their current private bank relationship for the whole family is at J.P. Morgan Chase," according to Mr. Spitzer's documents.
Knowledge of Mr. Sihpol's budding new business began making its way up the asset-management chain of command. In May 2001, Mr. Sihpol sent an e-mail to Robert H. Gordon, who oversaw Bank of America's mutual-fund business. Mr. Sihpol provided Mr. Gordon an update on Canary's trading plans.
By early 2002, one executive noted that the Canary relationship "is controversial," Mr. Spitzer's documents show. Charles D. Bryceland, an executive who left the bank earlier this year, said in an e-mail that the private bank's concern was "making sure we do additional business if we are giving them $100 million of our balance sheet."
In January 2002, Mr. Bryceland updated senior executives, including Mr. DeMartini, who is among the bank's top 10 executives, on the Canary business. In the e-mail, Mr. Bryceland praised "Rob Gordon and BACAP for giving access to BACAP funds for market timing activities. (Initial business we booked and not normally accepted by BACAP.)"
At some point in 2002, Mr. Gordon e-mailed Mr. DeMartini, saying that the bank intended to ask Mr. Stern for a $20 million commitment for a new fund. (The fund was never launched.) By this May, however, questions were surfacing about the appropriateness of the business, the court documents show.
A BACAP employee wrote in an e-mail, "We would be happy to set up a futures trading account for this guy and handle futures trades for him, but a mutual fund is not the right vehicle for this kind of trading."
Mr. Spitzer says the business with Canary continued until Canary received a subpoena from Mr. Spitzer's office in July.
美国银行涉嫌幕后交易
本周之前美国银行(Bank of America Corp., BAC)一直一帆风顺，丰厚的利润推动股价屡创历史新高。总裁刘易斯(Kenneth Lewis)小心躲避一切丑闻，他的名望越来越显赫，美国银行也成了一台印钞机。
但本周，该银行旗下的资产管理子公司被控与新泽西州一家对冲基金公司从事了幕后交易，这家子公司高层间来往的电子邮件让人们怀疑公司是否为了揽生意而不择手段。周三上午，纽约州司法部长斯皮策(Eliot Spitzer)宣布将对这一幕后交易展开调查，而美国银行则是调查中的主角。一石激起千层浪，美国银行股价应声下跌了4%。
斯皮策曾指控华尔街公司在股票研究方面存在利益冲突，这些公司最终花费14亿美元才得以达成和解。此番斯皮策认为，美国银行使对冲基金公司Canary Investment Management LLC享有交易特权。简而言之，斯皮策在起诉书中称，美国银行帮助Canary在美东时间下午4时股市收盘之后得以继续进行共同基金的交易，从而有机会从影响股价走势的重大盘后消息中获利，这种特权是普通投资者想都不敢想的。Canary是一家为机构和富人服务的投资机构。起诉书同时指出，美国银行还从发放给Canary的贷款中赚取好处费，并企图与该对冲基金公司及其经理人的富有家族做其他有利可图的生意。 Canary的经理没有承认或否认存在过失，但同意支付4,000万美元的罚款和赔偿金。不过美国银行没有受到指控，它还宣布正在配合斯皮策进行调查。
同时担任美国银行首席执行长的刘易斯昨天在接受访问时表示，他将迅速采取行动来调查真相。他说，如果指控为真，如果管理高层玷污了银行享誉全国的美名，他们将被炒鱿鱼。他还表示，不仅他本人对这样的行径感到气愤，其他134,000名同事也很气愤。
刘易斯称已经成立了一个内部委员会来调查斯皮策提出的指控。他说，委员会在夜以继日地工作，一定要查个水落石出。
今年较早时候，刘易斯在利益冲突和过失问题上表示了强硬的立场，他宣布为了让美国银行能够与Lowe's Cos.继续业务往来，而不受到利益冲突指控，他本人将辞去在该家居装修用品零售商董事会中的职务。
刘易斯在去年年报中表示，公司崇尚公开的企业精神，良性的讨论是受到欢迎的，他希望公司同仁揭发所有不正当行为。
不过，如果斯皮策指控为真，那么似乎这么长时间以来，当美国银行的资产管理部门同Canary Investment Management之间发生不恰当交易的时候，却没有人站出来揭发。
斯皮策对熟悉美国银行资产管理部门的人士的调查，以及他公布的一些电子邮件都显示，该部门急于揽到业务。斯皮策的指控和证据还掀开了资产管理业和美国银行的神秘一角。
斯皮策公布的电子邮件显示，美国银行的一些高层管理人士此前清楚、或被通知该银行与Canary对冲基金之间存在不同寻常的交易。其中一封电子邮件的收件人为里查德?德马尔蒂尼(Richard DeMartini)，这位美国银行资产管理部主管还称赞了相关交易。美国银行资产管理部管理超过3,000亿美元的资产。刘易斯起用德马尔蒂尼以增加资产管理子公司的收入，该子公司为美国银行贡献约5%的净利润。
根据斯皮策提交的电子邮件，美国银行与Canary的交易始于华尔街古老操作手法－向潜在的主顾打推销电话，由美国银行交易员西奥多?西波(Theodore Sihpol III)进行这项工作。美国银行相关电子邮件显示，西波与一名未被透露姓名的人士从2001年就开始从事电话推销工作，从而与斯特恩(Stern)家族建立了联系。Canary Investment的执行主管艾德华?斯特恩(Edward J. Stern)是宠物食品及地产界大亨莱昂纳德?斯特恩(Leonard Stern)的儿子，现年38岁。
西波的一名家庭成员认为西波所打的所有推销电话均与美国银行有关。美国银行迄今仅由刘易斯负责对外就相关事宜发表评论。西波曾于2001年4月份在一份两页长的备忘录中表示，斯特恩家族总资产接近30亿美元，在纽约市最富有家族中排名第十一。西波解释说，艾德华?斯特恩的对冲基金希望与美国银行共同运用随势操作策略，即准当日交易策略。除控告美国银行与斯特恩从事非法交易外，斯皮策还指控该银行及其他大型基金公司违规允许Canary冲基金迅速地买进及抛出共同基金。
斯皮策的文件显示，西波在谈及斯特恩家族时还表示， 该家族当前所有的私人银行业务都交给了摩根大通(J.P. Morgan Chase)。
西波的新业务理念逐渐被美国银行的高层人士所知晓。西波于2001年5月份给美国银行主管共同基金业务的罗伯特?戈登(Robert H. Gordon)发送了一封电子邮件，向后者通报了Canary交易计划的最新方案。
斯皮策的资料显示，2002年年初，美国银行的一名管理人士曾表示，与Canary的关系值得怀疑。今年早些时候离开美国银行的管理人士查理?布赖斯兰(Charles D. Bryceland)在一封电子邮件中表示，旗下私人银行关心的问题是，如果美国银行向Canary提供1亿美元的资金，那么该私人银行能否得到额外业务。
2002年1月份，布赖斯兰向包括德马尔蒂尼在内的美国银行高层管理人士通报了Canary业务的最新情况。德马尔蒂尼是美国银行最重要的十位管理人士之一。
2002年的某个时候，戈登向德马尔蒂尼发送了一封电子邮件，他说，美国银行希望斯特恩承诺提供2,000万美元，以共同推出一只新基金。（但这只基金迄今没有成立。）法庭文件显示，上述业务的正当性遭到质疑。
斯皮策表示，直到Canary于7月份收到了他发出的传票后，美国银行才终止了与Canary的业务往来。
