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Five US and European pension funds sue Bank of America over controversial Merrill Lynch acquisition

Lawsuit follows US Judge’s decision to veto BoA SEC settlement.

A group of five US and European pension funds has filed a lawsuit against Bank of America that could seek billions of dollars in damages over allegations that its acquisition of Merrill Lynch last year destroyed tens of billions of dollars in shareholder assets. The 155-page complaint, filed in a U.S. District Court in New York, alleges that statements made by the bank in 2008 about the deal failed to disclose known losses running to billions at Merrill Lynch and billions more in bonuses for Merrill staff. The funds in the ‘lead plaintiff group’, which collectively oversee assets of some €227bn, are the Netherlands’ Zorg en Welzijn (PGGM), Sweden’s AP4, Ohio’s State Teachers Retirement System and its Public Employees Retirement System and the Teacher Retirement System of Texas. The suit alleges that Bank of America, during last year’s merger negotiations prior to the merger announcement on September 15, agreed to allow Merrill Lynch to pay up to $5.8 billion in discretionary year-end bonuses to its executives and employees, but failed to disclose this materially important information to shareholders. Additionally, it alleges that in the two months prior to the shareholder vote on the merger, Merrill Lynch suffered billions in losses that senior executives at both Merrill Lynch and Bank of America did not disclose to investors.Commenting on the lawsuit, Attorney General Cordray, said: “They were concealing billions of dollars in losses with one hand and clearing the way for extravagant bonus payments with the other. This case gives public pension funds and other shareholders a chance to stand up against Wall Street.” Cordray said the suit could eventually seek “billions” in damages. A Bank of America spokesperson, said: “We’re confident we disclosed all that was required and look forward to presenting our position to the court.” Earlier this month, US federal Judge Jed S. Rakoff rejected a $33m settlement between the Securities and Exchange Commission and Bank of America, after the SEC accused Bank of America of failing to adequately disclose the Merrill Lynch bonuses. The SEC had agreed to allow Bank of America – and by extension its investors – to pay $33m to settle the charges without admitting fault. Rakoff said the arrangement was a “contrivance designed to provide the SEC with the facade of enforcement” that nonetheless “victimises” shareholders.
According to US press reports, New York Attorney General Andrew Cuomo is also preparing to file securities fraud charges against Bank of America executives related to the disclosures.