New York's Attorney General Andrew Cuomo has been investigating whether billions paid in executive bonuses at Merrill Lynch ahead of its takeover by Bank of America (BofA) were sanctioned by the Charlotte, North Carolina-based bank.

Cuomo's office is now considering whether the early payments encouraged Merrill traders to mark down their portfolios -- which would make it easier for them to post gains fresh out of the gate in January, the paper said.

Three former Merrill Lynch executives told the paper that traders made such changes to their books in late December.

The executives said the markdowns were not outsized, and did not represent a concerted effort to "kitchen sink" the quarter, the paper said, referring to a strategy in which positions are marked down to make later results look better.

In a court filing expected Wednesday, Cuomo will respond to BofA's argument that the disclosure of the individual bonus payments to Merrill employees in December would be an invasion of privacy, the paper said.

Cuomo's office is expected to argue that prosecutors need the specifics of the bonus payments to determine whether important information was kept from BofA shareholders who approved the Merrill acquisition and from federal officials who gave $45 billion in taxpayer funds to the bank, the paper said.

Merrill and Cuomo's office could not be immediately reached for comment by Reuters.

(Reporting by Ajay Kamalakaran in Bangalore)