Jan. 17 (Bloomberg) -- Merrill Lynch & Co. will pay $550 million to settle claims by the Ohio State Teachers Retirement System and other shareholders that it misled investors about assets backed by subprime mortgages.

Merrill, which was acquired by Bank of America Corp., will pay $475 million in cash to investors including the teachers union fund and $75 million in cash to settle claims by company employees who held stock in certain retirement plans, the company said yesterday in a filing with the U.S. Securities and Exchange Commission. Claims in the suits focused on subprime- related losses and related disclosures between September 2006 and December 2008.

The company was accused of issuing false and misleading statements about collateralized debt obligations and other assets backed by subprime mortgages, artificially inflating Merrill Lynch’s shares, according to the complaints filed in federal court in Manhattan.

“Many Ohioans saw the value of their retirement savings take a nosedive as a result of improper practices on the part of financial giants,” Ohio Attorney General Richard Cordray said in a statement.

Didn’t Admit Wrongdoing

Merrill didn’t admit wrongdoing as part of the settlements, according to the filing. The settlements don’t cover derivative shareholder or bondholder claims. The company is defending those lawsuits, according to the filing.

“Although we vigorously disputed the allegations in these cases, we concluded it was best to avoid the uncertainty, distraction and costs of the litigation, and to try to achieve certainty through these settlements,” Mark Herr, a spokesman for Merrill Lynch, said in an e-mailed statement.

The U.S. government said yesterday it will invest $20 billion in Bank of America and guarantee $118 billion of assets to help the company absorb Merrill and prevent the financial crisis from deepening.

The board of the Ohio state teachers fund approved the settlement yesterday. The accord must also be approved in federal court in Manhattan.

The case is In Re Merrill Lynch & Co. Inc. Securities, Derivative and ERISA Litigation, 07-9633, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

Last Updated: January 17, 2009 00:01 EST