NEW YORK - In what is being called the largest settlement of a credit-crisis-related securities class action lawsuit, Bank of America Corp. (BoA) has agreed to a $2.43 billion settlement on claims that it and certain of its executive officers and directors misrepresented the company's business and financial condition, as well as the business and financial condition of Merrill, Lynch & Co. Inc. prior to BoA's acquisition of Merrill, according to a BoA press release issued Sept. 28 (In re: Bank of America Corp. Securities, Derivative, and ERISA Litigation, No. 09-MDL-2058, S.D. N.Y.).
According to the press release, under the terms of the settlement, which are subject to court approval, BoA and the officers and directors will pay the $2.43 billion and institute a number of corporate governance policies.
"The amount to be paid under the proposed settlement will be covered by a combination of Bank of America's existing litigation reserves and incremental litigation expense to be recorded in the third quarter of 2012. The company estimates total litigation expense will be approximately $1.6 billion for the three months ended September 30, 2012, which includes the incremental costs of the related settlement above previous accruals and other litigation-related items," according to the press release.
"The settlement agreement also contemplates that Bank of America will institute and/or continue certain corporate governance enhancements until January 1, 2015, including those relating to majority voting in director elections, annual disclosure of noncompliance with stock ownership guidelines, policies for a board committee regarding future acquisitions, the independence of the board's compensation committee and its compensation consultants, and conducting an annual 'say-on-pay' vote by shareholders."
After the Judicial Panel on Multidistrict Litigation consolidated 31 separate but similar class action, derivative and Employee Retirement Income Security Act lawsuits into the Southern District of New York on June 10, 2009, five pension funds named as lead plaintiffs filed a consolidated complaint in the District Court on behalf of all purchasers of BoA common stock from Sept. 15, 2008, to Jan. 21, 2009, excluding "any shares of BoA common stock acquired by exchanging the stock of Merrill Lynch & Co. Inc. for BoA stock through the merger between the two companies consummated on January 1, 2009," who "held BoA common stock or 7% Cumulative Redeemable Preferred Stock, Series B as of October 10, 2008, and were entitled to vote on the merger between BoA and Merrill" or who "purchased BoA common stock issued under the Registration Statement and Prospectus for the $10 billion offering of BoA common stock that occurred on or about October 7, 2008, and were damaged thereby."
The lead plaintiffs named BoA and Merrill, as well as BoA CEO Kenneth D. Lewis, former Chief Financial Officer Joe L. Price, Chief Accounting Officer Neil A. Cotty and Merrill CEO John A. Thain (collectively, the officer defendants), the BoA board of directors and underwriters Banc of America and Merrill subsidiary Merrill Lynch, Pierce, Fenner & Smith Inc. as defendants.
The lead plaintiffs alleged that the defendants violated Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rules 10b-5 and 14a-9 and Sections 11, 12 and 15 of the Securities Act of 1933 by issuing a series of false and misleading statements concerning BoA's due diligence in preparing its multibillion-dollar acquisition of Merrill and its ensuing payment of millions of dollars in executive year-end performance bonuses and compensation to Merrill officers and directors. The lead plaintiffs sought damages and costs associated with litigating the action.
Defendants' Argument Rejected
On July 29, 2011, Judge Kevin Castel found that the lead plaintiffs could bring securities fraud claims against Lewis and Price, saying the plaintiffs sufficiently alleged that Lewis and Price acted recklessly when they did not disclose to shareholders that Merrill was losing billions of dollars. On Feb. 6, Judge Castel certified the class.
The lead plaintiffs are represented by Robert N. Kaplan and Frederic S. Fox of Kaplan Fox & Kilsheimer in New York, Max W. Berger and Steven B. Singer of Bernstein Litowitz Berger & Grossmann in New York and David Kessler and Gregory M. Castaldo of Kessler Topaz Meltzer & Check in Radnor, Pa.
The defendants are represented by Mitchell A. Lowenthal and Lewis J. Liman of Cleary Gottlieb Steen & Hamilton in New York and Peter C. Hein, Eric M. Roth, Joshua A. Naftalis, Kevin S. Schwartz and Olivia A. Maginley of Wachtell Lipton Rosen & Katz in New York.
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