Every week, we take stock of how the week unfolded for the top stories we're tracking in Scandal Watch (see the right sidebar). Here is how we do it. And, as always, feel free to suggest new scandals.
Last Friday, Bank of America admitted a secret deal with the U.S. government that helped oil its purchase of Merrill Lynch, prompting angry shareholders to ask why they were left in the dark. The news came on the heels of BofA’s disclosure that Merrill had lost $15.3 billion in the fourth quarter. BofA claims it didn’t know about the massive loss before shareholders agreed to buy Merrill on Dec. 5, but one investor isn’t so sure. At any rate, BofA told the government about the losses about a month before shareholders were clued in.
Some more indications that BofA might have gotten a raw deal: Merrill agreed last week to dole out $550 million to settle claims it misled investors about its subprime-mortgage-backed assets. Merrill also fast-tracked its bonuses by a month to award billions to its employees just three days before the BofA deal closed. Amid this flurry of bad publicity, Merrill’s CEO resigned from BofA on Thursday. The news that he spent $1 million to redecorate his office early last year didn’t do much to boost his legacy.
The Treasury has toughened its stance on bailed-out banks, demanding that twenty of them report on their lending activity and that CEOs personally guarantee they’re complying with pay caps. Meanwhile, the Wall Street Journal reports that the Treasury’s process of picking which banks get bailout bucks might have been swayed by influential politicians, and ProPublica reports that the Treasury has actually inched pretty close to bank nationalization.
President Obama wasted no time following through on promises to shut Gitmo. On Tuesday night he asked the secretary of defense to halt all military tribunals there for 120 days. On Thursday he issued executive orders to close Gitmo within a year and shut down CIA’s network of secret prisons. Shuttering Gitmo won’t be an easy task and some detainees might end up settling in the U.S., according to Obama’s order.
Obama also issued an order on Thursday to delay the Supreme Court’s review of the case of the only enemy combatant held on U.S. soil. Meanwhile, Obama’s pick for director of national intelligence promised a clean break from the Bush administration’s approach to counterterrorism.
A growing number of companies are facing investor suits accusing them of handing over their cash to Madoff without letting them know. At least seven investment firms with ties to Madoff are reportedly facing suits. Meanwhile Politico reports that fraud experts suspect more Madoff-type scandals are lurking in the background, waiting to be uncovered. The recent charges against Arthur Nadel are case in point.
The SEC is facing embarrassment for yet another Madoff miss, this time as part of its 1992 investigation of an accountant who steered investors to Madoff. The only silver lining to Madoff’s fraud? Experts predict it will usher in tougher rules for money managers.
