Bank of America Agrees to Settlement of Merrill Claims

Bank of America Corp. agreed to pay $62.5 million to resolve investor claims that the bank’s directors mishandled the acquisition of Merrill Lynch & Co., company officials said.

U.S. District Judge Kevin Castel in New York today approved Bank of America’s offer to add $42.5 million to a $20 million settlement of shareholder lawsuits alleging the bank’s board allowed executives to overpay for Merrill Lynch in 2009. Castel indicated in a Jan. 4 order he had questions about the “fairness, reasonableness and adequacy” of the original accord, according to court filings.

“We supported the terms of the settlement and we are gratified that the matter has been resolved,” Lawrence Grayson, a Bank of America spokesman, said in a telephone interview today.

Resolution of the claims against Bank of America’s board clears the way for Castel to focus on whether to bless a more than $2.4 billion settlement of other investors’ securities- fraud claims over the Merrill Lynch deal.

The shareholders claimed former Chief Executive Officer Kenneth D. Lewis and other board members misled them about the losses Merrill Lynch incurred before the $18.5 billion buyout and should have pulled the plug on the deal.

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.

Accord Challenged

Castel raised questions about the original $20 million settlement of Bank of America shareholders’ claims against Lewis and other directors after investors who’d sued in Delaware over the handling of the Merrill Lynch deal challenged it.

They argued that the accord amounted to just 4 percent of the $500 million in insurance Bank of America bought to cover directors and less than 1 percent of the more than $2.4 billion it agreed to resolve securities-fraud claims over the Merrill buyout. The settlement also would wipe out the Delaware claims, they said.

The $20 million settlement also amounted to about 13 percent of the $150 million fine the U.S. Securities and Exchange Commission levied against Bank of America in 2010 over the Merrill Lynch purchase.

The SEC accused Bank of America in August 2009 of failing to disclose to investors it had agreed to let Merrill Lynch pay as much as $5.8 billion in employee bonuses and incentives.

‘Grossly Inadequate’

“The grossly inadequate $20 million value of the proposed settlement cannot be justified under any circumstances,” Paul Paradis, a lawyer for Bank of America investors who sued in Delaware, said in a court filing.

“The Delaware objectors were pleased to be able to negotiate a three-fold increase in the settlement,” Paradis said today in a telephone interview.

Given the questions about adequacy of the original settlement, Castel ordered attorneys for Bank of America and lawyers for competing groups of investors to meet earlier this week “to discuss revisions to the proposed settlements,” according to court filings.

The 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 Nancy Rothbaum v. Kenneth D. 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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