New revelations from the New York State Attorney General’s office have all but proven that Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Hank Paulson committed bank fraud crimes in the case of the Merrill Lynch/Bank of America merger that took place last year. New York State Attorney General Andrew M. Cuomo revealed that Paulson and Bernanke illegally suppressed adverse financial data on the merger and threatened to replace the Bank of America CEO and board of directors if the company backed out of the Merrill Lynch merger. “Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke,” Cuomo wrote in an April 23 letter to Congress.

The two companies signed a tentative merger agreement September 15, 2008, but the agreement included a “Material Adverse Change” (MAC) clause that would allow Bank of America (BofA) to escape the merger if BofA financial officers found undisclosed financial information that would hurt BofA while looking at Merrill Lynch’s books. Bank of America shareholders approved the agreement with the MAC clause December 5, 2008. The final merger was to take place January 1, 2009.

But on December 14, BofA financial officers informed CEO Kenneth Lewis that Merrill Lynch’s quarterly losses would be $3 billion more than expected (the $9 billion in expected losses ended up being a $15 billion loss — a $6 billion increase over what stockholders expected and approved). Three days later Lewis informed U.S. Treasury Secretary Hank Paulson by phone that Bank of America planned to exit the merger using the MAC clause. Paulson urged Lewis to get on an airplane and visit his office.

Lewis met with Paulson and Bernanke December 21, where Lewis was told he would be replaced if BofA exercised the MAC clause. Then Bank of America Chief Executive Officer Kenneth Lewis tried to “deescalate” the conflict by saying he’d talk to his board. Lewis also testified he was instructed not to reveal the staggering Merrill Lynch losses to his stockholders: “I was instructed that ‘We do not want a public disclosure,’” Lewis told Cuomo’s office. Lewis took it as a demand to defraud his stockholders, a demand that he and his board of directors complied with.

That decision by Lewis and his board led Bloomberg.com financial columnist Jonathan Weil to comment in a particularly insightful column: “As for Lewis and the rest of Bank of America’s board, it’s a foregone conclusion that their word is now mud. The more honorable and legally appropriate path for them would have been to resign rather than participate in the cover-up.”

But more than just honor was violated. The law was violated as well. According to bank fraud laws, Paulson, Bernanke, Lewis, and his board of directors committed bank fraud against their stockholders. The Justice Department’s Criminal Reference Manual says of the bank fraud law: “The elements of the offense of making a false statement are: (1) making a false statement or willfully overvaluing property or security knowing the same to be false, (2) for the purpose of influencing in any way the action, (3) of the enumerated agencies and organizations.”

Bank fraud laws are so severe that an actual loss of stock value needn’t be actualized in order for criminal bank fraud to take place, according to the Justice Department Criminal Reference Manual. “The mere probability of loss to the bank is sufficient to establish intent to injure, and neither a possibility of future benefit to the bank nor restitution is a defense.” Of course, Bank of America did experience a serious financial injury. The stock price tanked from about $30 per share in September down to $5 per share in March, an 87 percent loss of value, and the otherwise financially secure Bank of America needed billions in federal bailout money just to survive.