Ken Lewis' A-List Witness List

To defend himself against today’s civil fraud charges, former Bank of America CEO Ken Lewis plans to call Henry Paulson and Ben Bernanke to the stand.

In defending former Bank of America CEO Ken Lewis against charges that he misled investors, his lawyers will call as witnesses former Treasury Secretary Hank Paulson and the current Federal Reserve Chairman Ben Bernanke, according to people close to the matter. The defense team, led by former U.S. Attorney Mary Jo White, hopes to get Paulson and Bernanke to reveal that Lewis did not mislead the government about BofA's deteriorating financial condition in the aftermath of its Merrill Lynch deal. Those losses prompted a massive government bailout.

White's first order of business is to get the civil case dismissed, according to several sources. But if she's unsuccessful, she plans a vigorous defense, including calling high-level government officials to testify. "If this thing goes to trial you can expect both Paulson and Bernanke to be on the witness list," said one person close to the defense team, "and right now Lewis doesn't want to settle."

“Right now Lewis doesn't want to settle," says a person close to the defense team.

It is unclear if either Bernanke or Paulson have already given testimony to the state attorney general in preparation for bringing today's case, which includes civil fraud charges against former Bank of America CFO Joe Price. (A spokesman for Cuomo's office did not return a call for comment; a spokesman for Bernanke had no comment and a spokeswoman for Paulson didn't return an email request for comment. And a spokesman for Lewis declined to comment on the matter.) So far, both men have given testimony before Congressional committees on the controversial merger. Paulson addresses the matter in On the Brink, his new book about his role in the financial meltdown of late 2008.

In a statement, White said that Lewis is being "publicly vilified by the political search for accountability for the financial meltdown." White also said that despite the initial problems with the merger—including the mounting losses that led to the government bailout—the merger has turned out to be an "unmitigated success for BofA." Merrill Lynch trading operations, like the trading operations of the other big banks, have taken advantage of historically low interest rates and borrowing costs to earn billions of dollars in profits, helping the banks to smooth out losses from consumer and commercial real-estate loans that continue to mount as economic conditions remain weak.

Bank of America's ill-fated purchase of Merrill in the middle of the 2008 financial meltdown has become the focal point of both congressional inquiries, a separate probe by the Securities and Exchange Commission (BofA also agreed to pay $150 million today to settle separate SEC charges) and the case brought today by the New York State Attorney General's office.

When Lewis agreed to pay around $50 billion for Merrill Lynch the weekend that Lehman Brothers declared bankruptcy in fall 2008, he was considered a hero at first—both by regulators and also Bank of America shareholders who assumed Merrill’s losses were manageable, particularly given BofA's large balance sheet.

But in the ensuing weeks, those losses looked more and more toxic, and after BofA shareholders approved the deal in early December 2008, Lewis told Bernanke and Paulson that he wanted to back out of the deal because Merrill's losses were so large that they imperiled BofA's future.

Since the matter became public, Lewis has been under fire over what he knew about Merrill's losses—as well as when he knew it. As I first reported back n last year when I broke the story that Lewis resigned, people close to him said the move resulted from the mounting pressure, from regulators and shareholders about his role in disclosing key details about the Merrill deal. In the New York Attorney General’s civil case, Cuomo alleges that Lewis knew Merrill's losses were huge before the shareholder vote and should have disclosed them before they voted to approve the deal, which caused BofA's stock to crater. Lewis contends that he didn't disclose the mounting losses on the advice of company attorneys.

There is also the matter of the controversial government bailout— namely was Lewis truthful when he approached Bernanke and Paulson in mid December that he wanted to back out of the Merrill deal, unless the government provided massive assistance. Cuomo says in his civil suit Lewis was not truthful, but according to people close to Lewis' legal team, both Bernanke and Paulson will be called to testify that he was.

Charlie Gasparino is a senior correspondent for Fox Business Network.

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