New York Attorney General Andrew Cuomo’s office filed charges against Bank of America Corp. as well as it former chief executive Kenneth Lewis and its former chief financial officer Joseph Price for allegedly hiding losses at Merrill Lynch before its acquisition of the brokerage firm.

According to the lawsuit, Bank of America’s [BAC] management intentionally failed to disclose massive losses at Merrill before shareholders approved the acquisition. Moreover, once the deal was approved, management then allegedly manipulated the federal government into granting a massive taxpayer bailout, according to the complaint.

In a detailed complaint, the state set forth how the deal was offered and how quickly the due diligence took place. According to the complaint, this was “an “enormous fraud on taxpayers who ended up paying billions for Bank of America’s misdeeds. Throughout this episode, the conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris and a palpable sense that the normal rules of fair play did not apply to them. Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

“This merger is a classic example of how the actions of our nation’s largest financial institutions led to the near-collapse of our financial system,” Cuomo said in a statement.

The complaint goes on to say that on Nov. 13, Price knew of at least $5 billion in after-tax losses and the company’s general counsel, Timothy Mayopoulos, and lawyers from its outside law firm, Wachtell, Lipton, Rosen & Katz, determined that the bank should disclose the losses. The lawyers discussed the idea that Price should approach Merrill CEO John Thain about the disclosure as well. But soon thereafter, the decision was reversed. Wachtell’s role was marginalized and Bank of America made its own decision not to disclose. Outside counsel was never again consulted about disclosure even after the losses later doubled, according to the complaint.

The same day the state filed its complaint, BofA announced a proposed settlement with the Securities and Exchange Commission to resolve the SEC’s case related to the same Merrill deal. That proposal will be submitted to Judge Jed S. Rakoff for approval.

In an emailed statement, the bank said it believes the new charges are without merit. "The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations," the
statement said. The bank notes that the SEC had access to the same evidence as the New York Attorney General and concluded that there was no basis to enter either a charge of fraud or to charge individuals. The company and the executives will vigorously defend themselves, the statement said.