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The Great Bank Thievery 

The city and state say the Bank of America stole hundreds of millions -- even billions -- of dollars from the government. But didn't San Francisco finance officials know what was going on? And shouldn't B of A executives be under criminal investigation?

Wednesday, Dec 31 1997
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"A false claims case is not an accounting case; it is inherently based in fraud and deceit," Lungren wrote the court in October 1997. "No accounting can be rendered due to fraud and deceit."

The many squabbles between the attorney general and the city attorney have sometimes been ridiculous, but seldom sublime. Some accuse Renne of filing San Francisco's intervention in the Stull case prematurely, to grab media attention.

Deputy City Attorney Mahoney retorts that the city filed because the state was conducting secret settlement negotiations with BofA. "We were not certain that the state would file in a timely manner," Mahoney says. Brian Taugher denies Mahoney's charge and claims Renne filed hastily, after receiving a call from a major television network.

Court records show that Renne had to refile her papers after the attorney general formally joined the whistle-blower lawsuit. The reason? Her first filing was procedurally incorrect.

By midsummer, Judge Robertson was so distressed by what he termed the "competing approach of various plaintiff's groups" that he created a "liaison counsel" to speak collectively for the entities suing BofA. But the judge's pleas for plaintiff unity have fallen on deaf ears. On Dec. 12, he heard preliminary arguments in a new squabble between Lungren and Renne over the division of the final $10.6 million payment BofA has agreed to make as part of the $48 million the bank has admitted it owes.

Renne and Lungren will air their dirty laundry again on Jan. 23. Judge Robertson's decision in this matter will set a precedent for how any future damages and penalties are distributed. Either Renne, or Lungren, will have to learn how to be a good loser if the case against Bank of America is to proceed smoothly.

Meanwhile, BankAmerica's primary advocates, the disciplined partners at Heller, Ehrman, White & McAuliffe, seem privately pleased by the internecine warfare on the other side of the case.

An epitaph is engraved in the reddish granite that decorates the lobby of BankAmerica's corporate headquarters in San Francisco: "A. P. Giannini founded the Bank of Italy in 1904 to 'serve the needs of others -- the only legitimate business in the world today.' His devotion to this far-sighted philosophy revolutionized the face of banking, and he lived to see his 'Bank for the little fellows' become Bank of America, the largest bank in the world."

By 1997, BankAmerica, BofA's corporate parent, had fallen to No. 32 in the ranking of the world's largest bank holding companies, a victim of the growth of foreign banking centers. But it is still a formidable financial entity, with $248 billion in assets. Last year, BankAmerica enjoyed a 15 percent profit on shareholder equity. It is madly buying financial service and high-tech companies to soak up excess capital.

A decade ago, however, things were not so rosy for BankAmerica. More than 200 U.S. banks failed in 1988. BofA's Corporate Trust Division had been rocked by a $650 million loss in a student loan securities deal it had helped engineer. Third World debt defaults zapped the bank's profits, and Chairman of the Board Samuel H. Armacost cried, "Every single short-term profit-making device ... that raped the future of the institution has already been done."

The bank was on the ropes and scrounging for dimes. According to Stull vs. Bank of America, that scrounging included the theft of hundreds of millions of dollars in public bond funds. "Since at least 1986," San Francisco's intervenor lawsuit claims, "the Bank has been fully aware that its Corporate Trust Department was out of control. ... The Bank was knowingly taking and keeping money that did not belong to it. ... The Bank committed acts maliciously, fraudulently, and oppressively, with the wrongful and fraudulent intention of injuring San Francisco from an improper and evil motive amounting to malice, and in conscious disregard of San Fran-cisco's rights."

Even though the city and state have shrilly accused Bank of America of fraud and theft, the institution seems confident that Stull will be settled in its favor. Bank of America has not formally disclosed the existence of Stull to its stockholders, contending that the litigation is "immaterial" to the bank's financial future. (Its auditors do not agree.)

There are signs that BofA may be justified in its optimism.
In May, Reuters reported: "Some [California] state officials are downplaying the dispute. State finance officials said they do not believe the lawsuit will hurt the bank's relationship with most California agencies. ... It's a lovers spat."

The city of Los Angeles joined the lawsuit only at the last minute and eschewed criminal prosecution. "For us it's not a matter of concern," Los Angeles County Treasurer Larry Monteilh told Reuters. "[BofA is] trying to do the right thing. I don't think the bank tried to pull the wool over anyone's eyes."

And the city of San Francisco, which is accusing Bank of America of fraud and theft, recently awarded BankAmerica a $500 million bond underwriting deal. BofA holds almost all of the city's cash on deposit. BofA supervises investment of most of the city's $12 billion in financial assets. Despite allegations of theft, fraud, and deceit, BofA remains profitably cozy with its accuser.

Whistle-blower Patrick Stull appears to be the major fly in Bank of America's ointment. As long as Farella Braun & Martel sticks with Stull, he will be able to object to any settlement he considers insufficient. And if Renne and Lungren drop out of the case, Stull can continue on alone.

Despite fears that BofA will try to defend itself in the court of public opinion by attacking his motives, Patrick Stull says he is in for the long haul and looking forward to the big payday.

"Nobody wants to put the bank out of business," Stull says. "But the bank has to pay. It has to learn there are penalties for lying, stealing, and covering up. It has to be subject to the law.

About The Author

Peter Byrne

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