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Rep. Issa: Bernanke Engaged In 'Cover-Up' In Bank of America-Merrill Merger

UPDATED below at 3:22 p.m. with internal e-mail obtained by The Post:

Fed Chairman Ben Bernanke engaged in a "cover-up" to disguise his actions in strong-arming the merger of Bank of America and Merrill Lynch last fall, Rep. Darrell Issa (R-Calif.) charged in a statement released moments ago.

Quick catchup: Bank of America chief executive Ken Lewis has twice testified under oath that Bernanke and former Treasury Secretary Hank Paulson threatened to remove him (Lewis) and the B of A board if he didn't go through with a proposed merger with troubled brokerage Merrill Lynch.

Lewis said that he considered trying to back out of the deal as he saw Merrill's losses mounting into the billions in December, but said Bernanke told him he had to go through with the tie-up -- with $10 billion in government aid -- to keep the financial markets from collapsing. Bernanke has denied any wrongdoing in the matter.

Bernanke testifies on the Hill tomorrow before Issa's committee, so his provocative assertion today sets the stage for some drama. Issa is the ranking member of the House Oversight committee and has led the probe against Bernanke.

"The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition," Issa said in a released to Reuters and since obtained by The Post.

"The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," the statement said.

UPDATE: If there's anything like a smoking gun in Issa's holster, it's this e-mail exchange his committee obtained via subpoena, in which two Fed Reserve employees discuss withholding information from the Office of the Comptroller of the Currency (OCC), the Fed's regulator. Quoting from a Republican committee staff memo obtained by The Post:

"Even the OCC, Bank of America’s direct regulator, was kept in the dark by Federal Reserve employees when it came to the Fed’s negotiations with Ken Lewis over the MAC clause. In one exchange, Fed employees refer to an upcoming conference call in which they express their interest in withholding Bank of America’s negotiations with the government over the MAC:

'Given the presence of the OCC on the call, I think we should not discuss or reference the call with Ken Lewis and Paulson,' wrote one.

The reply came:

'Agree. Also not the MAC* discussion.' "

*MAC: Material adverse change, a clause written into merger contracts that gives one party the opportunity to try to pull out if previously undisclosed, harmful facts are uncovered. Lewis considered trying the MAC -- a legal challenge, that you can win or lose -- when he saw how Merrill's losses were mounting in December.

You can be sure Issa will ask Bernanke about this tomorrow. We'll be blogging it live.

-- Frank Ahrens
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By Frank Ahrens  |  June 24, 2009; 3:22 PM ET
Categories:  The Ticker  | Tags: Bank of America, Ben Bernanke, Hank Paulson, Issa, Ken Lewis, Merrill Lynch  
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Comments

Ben Bernanke is just about the best Fed Chairman that we could have at this time. Issa's attempts to discredit him are a disservice to the nation and to the constituents that he is supposed to be serve in California. Issa thinks that he will get ahead politically by aggrandizing himself in a probe of Bernanke. I think he will be exposed for the political hack he is and will be primaried out. We all need to work together as a nation with our President and our leaders. Bernanke is one of the best. Issa -- SHUT UP!

Posted by: Judy631 | June 24, 2009 3:06 PM | Report abuse

Issa wants to hang the fireman for getting a little water on the sofa.

Posted by: hodging | June 24, 2009 3:40 PM | Report abuse

In my opinion the best Fed Chairman we could have had for the last century is no Fed Chairman, not to mention no Federal Reserve. Of course now the Feds are attempting to use the crisis they helped create to gain even more power.

Posted by: mikeinalona | June 24, 2009 11:15 PM | Report abuse

Correct Mikeinalona I just which the rest of America would catch on to this massive scam that is keeping the taxpayer and the country broke.

Posted by: rickyd01 | June 25, 2009 9:48 AM | Report abuse

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