The facts and circumstances surrounding Bank of America's credit crisis-induced acquisition of Merrill Lynch remain among the highest profile and most controversial events during the global financial crisis. In a July 29, 2011 opinion (here), Southern District of New York Judge Kevin Castel granted in part and denied in part the defendants' renewed motions to dismiss in the consolidated Bank of America securities litigation arising out of BofA's acquisition of Merrill.
Judge Castel's opinion deals with two of the most controversial aspects of the events surrounding the deal - BofA's alleged failure during the fourth quarter of 2008 to disclose Merrill's deteriorating financial condition after the deal was announced but prior to the shareholder vote; and BofA's alleged failure to disclose the commitments of key government officials of financial inducements offered to BofA to complete the deal.
In mid-September 2008, at the height of the global financial crisis, BofA agreed to acquire Merrill Lynch. In October and November 2008, while shareholder approval of the transaction was pending, Merrill suffered losses of over $15 billion and also took a $2 billion goodwill impairment charge. The Complaint alleges that BofA's senior officials were aware of these losses as they occurred. The Complaint alleges that the losses were so significant that BofA management discussed terminating the transaction, prior to the December 5, 2008 shareholder vote on the merger, in which BofA shareholders approved the merger.
On December 17, 2008, BofA Chariman and CEO Kenneth Lewis called Treasury Secretary Henry Paulson to advise him that BofA was "strongly considering" invoking the "material adverse change" clause in the merger agreement, in order to terminate the deal prior to its scheduled January 1, 2009 close date. At Paulson's invitation, Lewis flew to Washington for a face-to-face meeting, at which Paulson and Federal Reserve Board Chair Ben Bernanke urged Lewis not to invoke the MAC clause.
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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