BofA Can Offer Merrill Settlement for Approval in N.Y.

Bank of America Corp. directors can offer a $20 million settlement of lawsuits alleging the bank overpaid when it bought Merrill Lynch & Co. for approval, a Delaware judge ruled.

Delaware Chancery Court Judge Leo Strine today denied a request by Bank of America shareholders who sued in Delaware over the $50 billion Merrill Lynch buyout to block another group of investors from asking a federal court in New York to approve the settlement.

“I have no confidence that I have the authority to enjoin parties to a federal proceeding,” Strine said in a hearing today.

Bank of America shareholders contend the board and former Chief Executive Officer Kenneth D. Lewis misled them about the brokerage firm’s losses leading up to the buyout and should have pulled the plug on the deal. Lewis left Bank of America in 2009.

New York-based Merrill Lynch, founded by Charles E. Merrill in 1914, suffered at least $50 billion in losses and writedowns linked to the collapse of the U.S. subprime mortgage market before agreeing to the sale in September 2008.

Lawrence Grayson, a Bank of America spokesman, declined to comment on Strine’s ruling in a telephone interview.

April 12 Settlement

Lawyers representing pension funds in Louisiana and Florida who sued in federal court in New York over the Merrill buyout reached the $20 million settlement April 12, according to court filings.

Attorneys for investors who sued Bank of America’s board in Delaware over the purchase in January 2009 contend the $20 million accord amounts to a fraction of the damage the company suffered as a result of the Merrill Lynch buyout. If the New York settlement is approved, it could wipe out the Delaware claims.

The Delaware plaintiffs say the $20 million amounts to just 4 percent of the board’s $500 million in insurance coverage and is inadequate, according to court filings.

The Delaware investors filed a so-called derivative action, which would return any recovery from insurance covering directors to the bank’s coffers rather than to individual shareholders.

October Trial

They had asked Strine to block the New York plaintiffs from presenting the settlement to U.S. District Judge Kevin Castel for approval. Strine set an October trial date for claims against Bank of America directors over the Merrill buyout.

The New York plaintiffs opposed that request and asked Strine to put the Delaware case on hold until Castel decides whether to accept the New York accord. The Delaware plaintiffs have filed objections to the settlement in Castel’s court.

In addition to denying the Delaware plaintiffs’ injunction request, Strine also agreed to stay the Delaware case until Castel issues a decision on the New York settlement.

Still, the judge warned lawyers for the Bank of America’s directors that if Castel rejected the settlement as inadequate, they’d face investors’ claims in Delaware.

“If the settlement goes away, the trial date stands,” the judge said today. All the directors would be forced go to trial without delay, Strine said.

The New York case is In re Bank of America securities, derivative and employee retirement income securities act litigation, 09-02058, U.S. District Court, Southern District of New York (Manhattan.) The Delaware case is Rothbaum v. Lewis, CA4307, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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