Judge Moves Forward Shareholder Claims against Bank of America

A judge has moved forward claims against Bank of America (BofA) Corp., certain officers, and directors that they concealed intended bonuses and losses at Merrill Lynch & Co after the bank agreed to acquire the investment firm.


U.S. District Judge Kevin Castel of the U.S. District Court for the Southern District of New York said qualifying language in the Joint Proxy and the Merger Agreement sent to shareholders did not disclose BofA’s consent to the Merrill bonuses. He rejected defendants’ contention that the Joint Proxy and the Merger Agreement could not plausibly be alleged to have been false and misleading, based in part on qualifying language that permitted Merrill to administer special employee compensation.  

While the defendants argued, among other things, that Securities and Exchange Commission (SEC) regulations do not require disclosure of bonuses in proxy statements, Castel ruled that the absence of an express disclosure obligation does not immunize statements that were, in fact, alleged to have been materially false and misleading.  

Castel also found that the securities complaint adequately alleges the materiality of defendants’ omissions concerning fourth quarter 2008 losses. “[A]t the time the Joint Proxy [was] issued, the defendants were aware that Merrill had suffered historically large losses in October. By the time the Joint Proxy [was] issued, the stormy forecast for the fourth quarter was not merely a projection: the storm had arrived. These losses were a known fact to company insiders, yet were not disclosed to BofA’s shareholders,” Castel wrote.  

A group of public pension funds in America (see Public Pension Group Vies for Lead Plaintiff in BoA Suit) and Europe (see Europe’s Largest Pension Fund Sues BofA over Merrill Lynch Deal) charged that material misstatements and nondisclosures inflated Bank of America’s stock price and facilitated shareholder approval of its agreement to acquire Merrill Lynch in January 2009. They claim the shareholders’ approval was based on a proxy statement hiding important facts.  

The opinion is at http://legacy.plansponsor.com/uploadfiles/bankofamericasecuritiessuit.pdf.