A Manhattan federal judge dismissed two lawsuits seeking to force Bank of America Corp. to sue former Merrill Lynch & Co. executives and directors over losses in mortgages and other risky debt.
The ruling was issued Tuesday by U.S. District Judge Jed Rakoff, the same judge who rejected Bank of America’s original $33 million settlement of U.S. Securities and Exchange Commission charges that it failed to disclose Merrill’s losses before shareholders voted on the companies’ merger in December 2008. He later approved a revised $150 million accord.
Bank of America shares have fallen 60 percent since the merger was announced in September 2008, and Merrill’s losses contributed to the largest U.S. bank being forced to obtain $45 billion of federal bailout money.
This month, the Federal Reserve rejected Bank of America’s plan to raise its dividend, a sign it still views the bank as weaker than its main rivals.
But Rakoff said the plaintiffs in the lawsuits failed to show that Bank of America’s board failed to sue former Merrill officials, including one-time Chief Executive Stanley O’Neal, because it was “so involved in the underlying wrongdoing” or acted in bad faith. The plaintiffs in both cases are Bank of America shareholders.
“The court does not take this step lightly,” he said, “for the allegations of the complaints, if true, describe the kind of risky behavior by high-ranking financiers that helped create the economic crisis from which so many Americans continue to suffer.”
Bank of America is based in Charlotte, North Carolina. It bought Merrill on Jan. 1, 2009, four weeks after shareholders of both companies approved the merger.
Bill Halldin, a bank spokesman, declined to comment. Lawyers for the plaintiffs and Merrill defendants, including O’Neal, did not immediately return requests for comments.
Merrill’s losses from collateralized debt obligations and subprime mortgages started to spiral higher in the third quarter of 2007, and the plaintiffs said Bank of America hid even higher losses after announcing the merger.
In approving the revised SEC accord in February 2010, Rakoff had written that Bank of America failed prior to the shareholder votes to adequately disclose the scope of Merrill’s “historically great” losses, or that it had authorized Merrill to pay as much as $5.8 billion of bonuses.
But he said the law required that he give substantial deference to the SEC. He called the accord “better than nothing,” but only “half-baked justice at best.”
Bank of America itself still faces a variety of litigation over Merrill, including a lawsuit brought by then-New York Attorney General Andrew Cuomo against the bank and Kenneth Lewis, the chief executive at the time of the merger.
Shares of Bank of America closed Tuesday down 2 cents at $13.35 on the New York Stock Exchange.
The case is In re: Merrill Lynch & Co. Inc. Securities, Derivative and ERISA Litigation, U.S. District Court, Southern District of New York, No. 07-09633
(Reporting by Jonathan Stempel; Editing by Gary Hill and Carol Bishopric)