So here’s another revelation of fraud for your Monday morning. Gretchen Morgenson has the story:

Days before Bank of America shareholders approved the bank’s $50 billion purchase of Merrill Lynch in December 2008, top bank executives were advised that losses at the investment firm would most likely hammer the combined companies’ earnings in the years to come. But shareholders were not told about the looming losses, which would prompt a second taxpayer bailout of $20 billion, leaving them instead to rely on rosier projections from the bank that the deal would make money relatively soon after it was completed.

What Bank of America’s top executives, including its chief executive then, Kenneth D. Lewis, knew about Merrill’s vast mortgage losses and when they knew it emerged in court documents filed Sunday evening in a shareholder lawsuit being heard in Federal District Court in Manhattan.

The disclosure, coming to light in private litigation, is likely to reignite concerns that federal regulators and prosecutors have not worked hard enough to hold key executives accountable for their actions during the financial crisis.

Ah, that New York Times understatement.

The information in the shareholder lawsuit includes sworn testimony from Ken Lewis, the former Bank of America CEO, admitting that he received the large loss estimates on the Merrill deal. Shareholders didn’t hear about the Merrill losses until two days after approval. This looks like an open and shut case of BofA defrauding its investors.

BofA acquired Merrill, along with Countrywide, in a frenzy of purchases during the financial crisis. It made BofA, one of the last banks standing, one of the largest megabanks in the country, but both acquisitions were disastrous, saddling the company with massive lawsuit exposure, toxic loans and liabilities from which the firm has arguably not recovered.

I would love to know the role of the federal regulators in this. The BofA-Merrill deal was very much a shotgun wedding, encouraged by Treasury and the Fed. Were they aware of the loss statements? Did they tell the bank executives to scotch the information? We’re talking about September 2008, with shareholder approval by December 2008. So somebody should give Mssrs. Paulson, Bernanke, and probably Geithner a call. Bernanke has previously stated before Congress that he “did not play a role in arranging this transaction.”

Regardless of the government’s role, you have in this lawsuit Ken Lewis admitting to defrauding shareholders. If the Securities and Exchange Commission is at all worthy of the name, they need to forward an investigation of this to the Justice Department. Ex-CEO Lewis and the entire BofA board at the time should go to jail.