Investors suing Bank of America Corp. won class-action status for their lawsuit accusing the bank of fraudulently misleading them about the 2008 takeover of Merrill Lynch & Co. and the size of Merrill’s losses and bonus payouts.
U.S. District Judge P. Kevin Castel in Manhattan on Monday rejected the second-largest U.S. bank’s argument that the investors could not prove they suffered losses by relying on materially misleading statements or omissions.
Among the other defendants who were also sued and opposed class certification were former Bank of America Chief Executive Kenneth Lewis, former Merrill Chief Executive John Thain, former Bank of America Chief Financial Officer Joe Price, and Bank of America’s board of directors.
Lewis had won initial praise for saving Merrill from possible collapse when he agreed to buy it on Sept. 15, 2008, the day Lehman Brothers Holdings Inc. went bankrupt.
But investors later faulted the bank for not disclosing the scope of Merrill’s soaring losses, which reached $15.84 billion in the fourth quarter of 2008, before Dec. 2008 shareholder votes on the merger. They also objected to Merrill’s having paid $3.6 billion of bonuses despite the losses.
Merrill losses forced Bank of America in January 2009 to get a second bailout from the federal Troubled Asset Relief Program, and contributed to a 93 percent drop in the Charlotte, North Carolina-based bank’s stock price.
The lawsuit consolidated litigation that had been brought nationwide, and names pension funds in Ohio, Texas, the Netherlands and Sweden as lead plaintiffs.
It covers a variety of investors who owned Bank of America stock or call options between September 2008 and January 2009.
Class certification lets plaintiffs pursue their case as a group, which can cut costs, and can lead to larger recoveries than if plaintiffs were to sue individually.
Bank of America spokesman Lawrence Grayson declined to comment. David Hoffner, a lawyer for Thain, had no immediate comment. Lawyers for the remaining defendants and the investors did not immediately respond to requests for comment.
In his ruling, Castel pointed to comments by Lewis on a Jan. 2009 conference call about “much, much higher deterioration” of Merrill assets than expected to support the plaintiffs’ claims that Merrill’s losses should have been revealed sooner.
He also said the record supported claims that the alleged misrepresentations about the bonuses were material.
Class certification was also appropriate because litigation of each claim separately “would likely result in wasteful and repetitive lawsuits,” he added.
Bank of America, Lewis and Price are also defendants in a civil fraud lawsuit led by New York Attorney General Eric Schneiderman. He took over that case from his predecessor Andrew Cuomo, who is now New York’s governor.
The law firms Bernstein Litowitz Berger & Grossmann; Kaplan Fox & Kilsheimer; and Kessler Topaz Meltzer & Check were named lead counsel for the plaintiffs in the class-action case.
Bank of America shares closed Monday up 13 cents at $7.97. They closed at $33.74 on the last trading day before the Merrill takeover was announced, and bottomed at $2.53 on Feb. 20, 2009.
The case is In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.