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October 03, 2012

Bank of America Settles Shareowner Lawsuit for $2.43 billion
    by Robert Kropp

The bank's 2008 acquisition of Merrill Lynch $20 billion preceded disclosure of $27.6 billion in losses, and led to lawsuit by pension funds charging the bank with making false or misleading statements.

SocialFunds.com -- In September, 2008—on the same weekend, in fact, when Lehman Brothers collapsed into bankruptcy—Bank of America acquired Merrill Lynch, another brokerage on the brink of failure as the financial crisis threw global markets into turmoil. Shareowners approved the acquisition in December of that year, and soon afterward Bank of America disclosed that Merrill Lynch would post losses of $27.6 billion.

The bank's stock price plummeted, and several shareowners—including the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, and the Teacher Retirement System of Texas—filed suit, alleging that the bank had violated federal securities laws through a series of materially false statements and omissions relating to the acquisition.

In the wake of the losses, Bank of America asked for and received a second TARP bailout, of $20 billion. It had already received $23 billion from the government through the TARP program.

Last week, Bank of America settled the lawsuit, agreeing to pay the plaintiffs $2.43 billion, but did so without acknowledging responsibility for what has been a described by some as "outright securities fraud." However, Ohio Attorney General Mike DeWine said, "Not only did we accomplish an excellent financial recovery, but other companies will look at the result here and think twice about not fully disclosing all necessary information to their shareholders."

The settlement increased the amount paid by the bank in response to litigation and customer complaints to $29 billion since the financial crisis, ac cording to the Wall Street Journal. Additionally, a civil fraud suit filed by New York State, alleging that Bank of America and its former CEO, Kenneth Lewis, failed to disclose the Merrill Lynch losses as was required of them, is pending.

Meanwhile, news reports indicate that John Thain, the former CEO of Merrill Lynch, is on Republican Presidential candidate Mitt Romney's short list of potential nominees to replace Timothy Geithner as Treasury Secretary. According to the Huffington Post, Thain "paid his executives massive bonuses before selling Merrill Lynch to Bank of America during the height of the financial crisis with the help of government bailout money. He tried to snag a $10 million bonus for himself as the firm was collapsing, and he even spent $1.2 million on remodeling his office -- including on a $35,000 toilet -- as Merrill Lynch was imploding."

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