The Great Bank Thievery

The $7.7 billion "reconciliation variance" did not please the bank's auditors. Starting in 1988, Ernst & Young dinged BofA with three "unsatisfactory" audit ratings in a row, in an industry where one unsatisfactory rating can be grounds for CEO departure. Court exhibits in Stull show that BankAmerica's board of directors should have been aware of what was going on. The bank's attitude, however, was summarized in a handwritten notation on an internal memo that acknowledged escheatment problems. A BofA official counseled: "Let sleeping dogs lie."

Despite the warnings from its accountants, court papers suggest, BofA continued to juggle bond accounts until it sold its Corporate Trust Division to Minneapolis-based First Bank System Inc. four months after Stull blew his whistle.

BofA and Security Pacific Bank -- purchased by BankAmerica in 1992 -- acted as trustees for the vast majority of bonded debt issued by California's civic institutions over the last two decades. Consequently, the California attorney general says, the Bank of America could owe the people of California as much as $3 billion -- that is, 3 percent of the $100 billion in bond funds entrusted to BofA and Security Pacific from 1978 to 1993.

The governments that have joined the Stull civil lawsuit allege that Bank of America failed to return unclaimed bond money, charged excessive fees for services, illicitly invested public money in its own deals, and deliberately destroyed the bank records that documented these events. These charges are being made in civil court; if the bank loses the suit, the punishment would come in the form of a monetary judgment. And that punishment could be severe. The whistle-blower law allows the tripling of damages, meaning that a $9 billion total judgment, although unlikely, is not impossible.

But the civil law violations alleged in Stull are mirrored in the California Penal Code. In criminal terms, the offenses might be termed felony theft, submittal of false claims to the government, the intentional embezzlement of public funds, and conspiracy to commit the aforementioned crimes.

And the civil law violations alleged against BofA also have civil and criminal counterparts in federal banking and securities laws.

The task force the attorney general assigned to investigate Stull's claims has stated for the record that at least some of BofA's actions constitute the theft of public funds. As Patrick J. Mahoney, the deputy city attorney tasked with San Francisco's prosecution of BofA, recently wrote, "At the heart of this case is the charge that one of the nation's leading banks has wrongfully taken the public's money for a long time."

Yet the government attorneys in the Stull case resolutely duck the question of whether criminal charges might be filed against Bank of America or its officers and directors. The catchword seems to be "prosecutorial discretion"; that is, the authority a prosecutor has to decide whether civil, criminal, or no legal action best serves the ends of justice.

When asked about the possibility of a criminal probe, Deputy Attorney General Brian Taugher said that "certain of the bank's transactions" could open the bank to "criminal liability." Taugher said, however, it is harder to prove intent to defraud "beyond a reasonable doubt," as required in a criminal case, than to meet the lesser standard of guilt for a civil court judgment, which is based on "a preponderance of the evidence."

Although Stull filed his lawsuit some 30 months ago, City Attorney Louise Renne has yet to refer the case to District Attorney Terence Hallinan for review. (In a recent interview, Hallinan said he would "look into it" without giving any specific indication about how deep or long a look his office might give to the many and complicated offenses BofA is alleged to have committed.)

The Federal Reserve office in San Francisco declined to reveal whether an investigation has been or would be conducted. Neither the U.S. attorney nor the Securities and Exchange Commission responded to telephone inquiries.

There are many possible explanations for the apparent lack of criminal investigation of what would probably, if proven, constitute the largest white-collar theft in California history.

First, criminal inquiry could be proceeding, but in secret.
Then again, prosecutors could just be slow off the mark, and will eventually mount a serious criminal investigation.

Or the city attorney, district attorney, California attorney general, and U.S. attorney could all find, within their own judgment and discretion, that the violations alleged against BofA are best remedied in civil court, and that a criminal action would be expensive and difficult to win.

But there are other possible explanations -- less savory explanations -- for the lack of criminal prosecution of those responsible for the alleged theft of public funds described in Stull. It is a simple fact that the Bank of America has long been deeply entwined in the elite circles where California business and politics meet. (A minor but instructive example: Kathleen Brown, who served as state treasurer during the first half of the 1990s, is now a senior executive vice president with BofA. Brown is in charge of assisting "high-net-worth and emerging wealth clients in Southern California," according to a BofA press release.)