The ramifications of the startling revelations about Bank of America's controversial acquisition of a failing Merrill Lynch are explosive, and they will have a major impact on the tragic drama's main actors, from BofA chairman Ken Lewis to Federal Reserve Chairman Ben Bernanke, and especially former Treasury Secretary Hank Paulson and whatever legacy he hopes to leave.  The events of December 2008 were absolutely crucial to understanding the financial crisis that threatened global markets. That they have become public four months afterward should trigger congressional hearings and raise once again the specter of machinations worked up by Wall Street and Washington out of public view and quite arguably out of the public interest.  "We have uncovered facts that raise questions about the transparency of the TARP program, as well as about corporate governance and disclosure policies at Bank of America," reads a letter from New York Attorney General Andrew Cuomo to Sen. Christopher Dodd, D-Conn., Rep. Barney Frank, D-Mass., and Securities and Exchange Commission Chairman Mary Schapiro.  Lewis may well be ousted at the Bank of America annual meeting in May, as many large institutional shareholders have organized a campaign to get a vote for his ouster. Since the Bank of America ( BAC - news - people )-Merrill Lynch deal was approved, Bank of America shares have fallen from $14.11 in mid-December to $3.75 a share at the low on March 9, and recovered to a still depressed $8.50 today.  None of the details revealed by Lewis' testimony to Cuomo's office--all substantive matters that would have been of keen importance to shareholders of Merrill Lynch and Bank of America--were ever made public before the deal went through on Dec. 31. That is a shocking violation of the requirement to inform shareholders of any material matters that could impact their vote or holding of shares in either company. This nondisclosure of market sensitive information means all the trading between Dec. 15 and April 22--tens of millions of shares of the largest U.S. bank--was executed on the basis of withheld information. This is a shocking violation of 75 years of securities regulation.  Incredibly, the SEC was never informed of any of this: that Merrill was about to report a huge $15 billion loss, that Lewis wanted to kill the deal, that Paulson told Lewis that Bernanke had instructed him to fire Lewis and dismantle his entire board if he refused to go through with the merger. It's not exactly clear what authority Paulson and Bernanke were going to use to replace Lewis and his board--powers they might assume in a pending systemic breakdown?  "Notably, during Bank of America's important communications with federal banking officials in late December 2008, the lone federal agency charged with protecting investor interests, the Securities and Exchange Commission, appears to have been kept in the dark," states Cuomo's letter to congressional leaders. "Indeed, Secretary Paulson informed this office that he did not keep the SEC chairman in the loop during the discussions and negotiations with Bank of America in December 2008." In other words, Paulson's disdain for SEC Chairman Christopher Cox meant that the Treasury was operating in an autonomous, somewhat high-handed fashion.  Is the bear market history? "Dow Theory" helps steer you out of declining markets and into those that are rising. Click here for advice and recommended stocks in Dow Theory Forecasts.  A former SEC commissioner tells Croesus today that Lewis certainly violated securities laws by submitting a vote to BofA shareholders in December of 2008 and willfully failing to disclose highly material facts to them and the investing public.  A huge black mark for Lewis is that he never discussed with his board the problem of disclosure to shareholders. As incredible as it may seem, Lewis, at the very least, did not even file an amendment to the merger agreement after it closed on Jan. 1, disclosing all the recent material developments concerning Merrill Lynch and Bank of America. This would have included deterioration of earnings, asset write-downs, his attempt to scuttle the deal and his negotiations with the Bush administration about top-level governance of the bank.  Lewis should be legally liable for not reporting all these machinations to the public and to financial market regulators. Apparently, he has testified that both Paulson and Bernanke urged him to remain silent about the threats to the transaction, using threats of replacing him. If this is true, then it could be argued that these two senior officials suborned information that was crucial to market decisions.  Another major problem that will be aired in hearings is the evidence that the chairman of the Federal Reserve, supposedly an independent institution, apparently dictated to the Treasury secretary an order to replace Lewis if he wouldn't go along with the deal. Paulson told Cuomo's office that the government "either could or would remove the board and management."  This opinion, Paulson explained to Cuomo's office, "was entirely based on what he was told by Federal Reserve officials." Late Thursday, however, a Paulson spokesman took a slightly different tack, explaining that "Bernanke did not instruct him [Paulson] to indicate any specific action the Fed might take." Will the real story please stand up?  If Paulson and Bernanke induced Lewis to violate the securities laws, then they are possibly party to a civil crime. Some investment bankers say that current Treasury Secretary Timothy Geithner is a party to these dealings as well. That would be logical and messy as hell. In all, it's another black eye to the Wall Street rescue plan and another blow to the small shareholder who had no idea of all this backroom infighting. It's also a real threat to the whole concept of transparency regarding the decisions that decide the fate of tens of billions of dollars and hundreds of millions of people.
Revelations that Ken Lewis had his arm twisted at the highest levels of government to buy Merrill should make for some interesting litigation.