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?

The vital question now before the court is: How much does the Bank of America owe to state and local governments? BofA admits it failed to escheat some unclaimed bond funds and inadvertently invoiced some fee overcharges to those governments. The bank says that these "discrepancies" were caused by "computer programming errors."

A few weeks after Stull's April 1995 filing, BofA began escheating small amounts of money to the state and returning small amounts of excess fee charges to local jurisdictions. To date, the bank has coughed up $48 million. But it has refused to make further payments and declines to reveal how it arrived at its $48 million figure.

BankAmerica says the plaintiffs are welcome to calculate how much they think they might be owed. To help them out, the bank has offered to produce documents that would, if lined up end to end, stretch for 100,000 miles. According to court records, Stull's original handful of evidence has already expanded to 600 million pages of documents.

"This is a classic defense strategy," Deputy City Attorney Mahoney says. "Drown the plaintiffs in meaningless documents and abdicate any responsibility for reviewing the records. ... The bank would like to prevent the public from knowing how badly it abused its trust. ... [BofA] knew it was stealing from the public."

The plaintiffs in the Stull lawsuit say that the bank cannot -- in reality -- calculate how much it owes them, because the bank systematically destroyed vital "paying agent" records. Every time the bank's auditors uncovered an "error," say the plaintiffs, the bank vaporized the trail of accounting records related to that "error."

In short, Stull claims, the bank hid its illegal transactions from municipal officials.

But BofA has a different story. BofA blames publicly elected treasurers, statewide, for not being able to document exactly how much the bank owes. The bank claims that the treasurers were supposed to bill the bank for unclaimed bond funds. Furthermore, insists BofA, public officials signed off on the very fee and investment transactions that now are being questioned.

Court exhibits and records obtained from the San Francisco city treasurer's office support many BofA claims. Those records show that San Francisco's treasurer received daily, monthly, and annual reports from BofA. Trust account operations were broken down to small details, and periodically summarized.

Three boxes of BofA invoices and trustee reports show that the city treasurer's office approved at least some of the types of transactions that the city attorney is now holding up as proof of massive theft. For example, Stull alleges that exorbitant billings for "miscellaneous" trustee fees were often false BofA claims. Yet BofA invoices with lump-sum $90,000 fees labeled as "miscellaneous" were routinely OK'd by the San Francisco Treasurer's Office.

Court pleadings filed in Stull allege that BofA regularly billed for interest payments on bonds that had expired. BofA invoices show that the San Francisco Treasurer's Office made these types of payments without complaint.

City Treasurer Mary Callanan and City Controller Edward Harrington declined to comment on these issues. On the other hand, the city's independent auditors, KPMG Peat Marwick, LLP, have not been silent. Peat Marwick has been telling San Francisco's treasurer and controller to clean up their acts for a decade -- to no avail. Like BofA, the treasurer and controller have blamed their problems on "computers."

And they have certainly had problems.
On March 30, 1997, Peat Marwick released an audit that damned the city's internal financial controls. City officials responded with silence.

"Historically," the auditors wrote, "the Treasurer's Office and the Controller's Office have experienced difficulty in preparing the monthly and year-end bank reconciliations and developing the information required for financial disclosure." The auditors reported that the city's general accounting ledger does not balance, and that the treasurer and controller are not accurately tracking billions in city bond and investment funds.

In 1995, an internal audit released by City Controller Harrington criticized Callanan for "failing to review and monitor [the city's] relationship with BofA."

In June 1997, Bank of America attorneys happily agreed. "Had the responsible San Francisco city officials reviewed monthly accounting statements prepared by the Bank," they wrote, "the Bank's investment in money market mutual funds would have been readily apparent to these officials."

And those "excessive" fees, the attorneys declared with some hint of sarcasm, were approved, too. "Issuers received monthly accounting statements which showed the exact amount of the fee," a BofA court filing says. "The Bank urges City Attorneys to check with their City Treasurer. We believe these officials were fully aware [of the content of] the fees being charged."

One BofA lawyer, Matthew L. Larrabee, put it more elegantly: "The core of the city's allegations damn the city."

Faced with tons of documents and dozens of high-priced squabbling lawyers, Superior Court Judge A. James Robertson II has split the mammoth Stull case in two. An April trial will address the question of how much money the bank owes -- or does not owe -- for unclaimed bond funds. A September trial will take on the subjects of false claims for fees and alleged self-dealing by BofA.

Attorneys on both sides say that the April trial will set precedents for later battles. The future of the case is being determined right now, as each side marshals its arguments. All the players agree: April will be the Waterloo of one side or the other.

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