NEW YORK - (Mealey's) 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 Sep. 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
"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
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.
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
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