Is “The Government Made Me Do It” a Valid Legal Defense?

Is “The Government Made Me Do It” a Valid Legal Defense? - 4/23/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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Is “The Government Made Me Do It” a Valid Legal Defense?
Staff Writer

Wall Street Journal Law Blog. April 23, 2009
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EXCERPT: If the government wants a company not to reveal material information to its shareholders, does that make it easier or harder for investors to sue the company? That’s the lingering question after this morning’s disclosure about the Bank of America-Merrill Lynch merger. And we may not know the answer until a court decides. First, a little background. Bank of America shocked the investment world with its mid-January announcement that Merrill, which it had just purchased, lost $15 billion in the fourth quarter of 2008 alone. BofA’s share price plunged. Shareholders who approved the deal were furious. And plaintiffs’ lawyers sharpened their pencils and crafted these suits (here and here), claiming BofA’s executives and directors failed to disclose material information and breached their fiduciary duties by not terminating or renegotiating the merger. This morning, the New York Attorney General made public the transcripts of depositions he took of BofA’s chairman, Ken Lewis, and former Treasury Secretary Henry Paulson regarding the merger. According to the transcripts, Lewis said Paulson told him the government would remove BofA’s board and management if it acted on its urge to back out of the merger. Lewis also said his decision not to disclose information to shareholders was based on direction from Paulson and Federal Reserve Chairman Ben Bernanke: “I was instructed that ‘We do not want a public disclosure.’ ” (A spokeswoman for Mr. Bernanke said today that the Fed didn’t advise Lewis on disclosure.) Could these revelations offer BofA and Lewis a shield from lawsuits? One law professor, Michael Perino of St. John’s, thinks not. He says there’s nothing in the law that says defendants can withhold information from shareholders because “the government made us do it.”

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