Civil charges were also being filed against Joe Price, the bank's former chief financial officer.
At the same time Attorney General Andrew Cuomo's office was filing its civil charges, the Securities and Exchange Commission reached a settlement to resolve separate federal charges it brought against Bank of America over similar issues. It is the second time the SEC and Bank of America have tried to settle the case.
Bank of America has been accused of failing to properly disclose losses at Merrill and bonuses paid to investment bank employees before the deal closed. Cuomo called Bank of America's actions "egregious and reprehensible" in deceiving not only shareholders, but also the federal government.
The bank received an additional $20 billion in government bailout funds in January 2009 to help offset losses it absorbed as part of the Merrill Lynch acquisition. In December, Bank of America repaid the $20 billion, plus the initial $25 billion it received in government bailout money.
Lewis stepped down as CEO from Bank of America Corp. on Dec. 31 after almost a year of strife that followed the bank's purchase of Merrill Lynch. Price became head of the bank's consumer banking division, taking over for Brian Moynihan, who succeeded Lewis as CEO on Jan. 1.
Moynihan is not under investigation.
"We are disappointed and find it regrettable that the NYAG has chosen to file these charges, which we believe are totally without merit," Bank of America spokesman Robert Stickler said.
"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," Stickler said. "In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals."
Bank of America agreed to pay $150 million to shareholders to settle the SEC charges. The agreement still must be approved by U.S. District Judge Jed S. Rakoff.
In September, the bank and the government agreed to a $33 million settlement only to have Rakoff reject the agreement.
Stickler confirmed that the bank won't not be going to trial with the SEC on their charges, assuming the settlement is approved. The trial was scheduled for March 1.
Rakoff called the first deal a breach of "justice and morality" and ordered the case to go to trial. Rakoff wrote that the $33 million settlement was "done at the expense, not only of the shareholders, but also of the truth."
A hearing about the new settlement is scheduled for Monday afternoon.
Stickler said the company, along with the executives will vigorously defend themselves against the attorney general's charges.
Bank of America stock was down 59 cents, or almost 4 percent, at $14.92 in afternoon trading. However, its losses were in line with other banking companies as the overall stock market plunged on economic concerns.