Bank of America Must Defend Claims It Concealed Merrill Bonuses

By Joel Rosenblatt and Patricia Hurtado | August 28, 2010

Aug. 28 (Bloomberg) -- Bank of America Corp. must defend lawsuit claims it concealed bonuses and losses at Merrill Lynch & Co after it agreed to acquire the brokerage firm, a judge ruled.

U.S. District Judge Kevin Castel in Manhattan yesterday granted some of Bank of America’s requests to dismiss claims in the consolidated class-action securities-fraud and derivative lawsuits, while denying others.

Bank of America, the largest U.S. bank, acquired Merrill Jan. 1, 2009, in a deal criticized by lawmakers, regulators and investors over its cost and the U.S. bailout that followed. Castel yesterday rejected Bank of America’s argument that one claim in the case should be dismissed because the bank’s proxy materials didn’t misstate or omit Merrill’s intention to award employee bonuses made in December 2008.

Investors also claim in the suits that the merger agreement triggered a duty to disclose negative events before the shareholder vote because the agreement said “no material adverse effects” would arise between the time the agreement was made and the closing of the acquisition. Castel granted Bank of America’s request to dismiss that claim.

Bank of America spokesman Bob Stickler said the company is studying yesterday’s ruling and declined to comment further.

Andrew Entwistle, a lawyer representing shareholders, declined to comment.

$150 Million Settlement

In February, Bank of America agreed to pay investors $150 million to settle a Securities and Exchange Commission suit claiming the Charlotte, North Carolina-based bank misled shareholders about bonuses and losses after announcing it would acquire Merrill. The settlement also requires the bank to take steps over the next three years to strengthen its corporate governance.

Also in February, New York Attorney General Andrew Cuomo also sued Bank of America along with former Chief Executive Officer Kenneth Lewis and former Chief Financial Officer Joe Price. Cuomo accused them of misleading investors by failing to disclose losses at Merrill Lynch. Lewis has asked the court to throw the case out.

The case is In Re Bank of America Corp. Securities, Derivative, and ERISA Litigation, 10-05563, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Bank of America Corp., 09- cv-06829, U.S. District Court, Southern District of New York (Manhattan). The Cuomo case is People of State of New York v. Bank of America, 450115-2010, State Supreme Court (Manhattan).