The Great Bank Thievery

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.

Sometime after the April hearing, Judge Robertson will rule on whether BofA's bond trustee accounting records are reliable enough to be used in calculating possible BofA debts to the state and other governments. The judge has hired a certified public accountant, Francis Callahan, to help assess the accuracy of the records.

The 200-plus plaintiffs in the Stull case maintain that the accounting issue is relatively simple. The bank's records, they say, are bogus; all the audit trails showing that BofA improperly seized unclaimed bond funds have been destroyed. The amount of money the bank owes should, therefore, be calculated by using a benchmark -- 1 to 3 percent -- relating to the amount of bond funds that go unclaimed, industrywide. And that calculation should be tripled, as allowed under the whistle-blower law, giving Stull and the governments that have joined his lawsuit billions of dollars in damages.

But if Judge Robertson rules the bank's trustee records are coherent, he will use those records to determine how much money the bank does or does not owe for unclaimed funds. The plaintiffs fear this latter scenario like death because, they say, the existing bank records do not show the huge amount of bond funds that allegedly were embezzled through the years.

On the other hand, if the records are deemed unreliable, a jury will be impaneled to assess monetary damages owed by Bank of America. BofA's pleadings make clear the bank is eager to avoid a jury trial: "The enormously complex accounting issues would confuse the jury."

Nobody knows which of the 600 million BofA records Judge Robertson and his expert accountant will review as they struggle to decide if the bank's accounts are real or faked. As those documents are reviewed, the two main government attorneys involved in the whistle-blower case remain busy -- snarling at one another.

From the start of the Stull case, Attorney General Dan Lungren, a Republican, and City Attorney Louise Renne, a Democrat, have differed over fundamental strategy. According to Deputy City Attorney Mahoney, Renne wanted to put all of her eggs in the hands of accounting experts. Lungren, convinced BofA had eliminated the paper trail that accountants would need to calculate damages, preferred the industry benchmark approach.

"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.