Sunday, May 06, 2012

Ignoring the Real Money in the Bank of America Lawsuits

The bitter aftertaste from Bank of America’s acquisition of Merrill Lynch refuses to dissipate.

Gretchen Morgenson of The New York Times has reported that plaintiffs’ law firms representing shareholders are fighting over whether to settle class-action lawsuits against the Bank of America board over the acquisition for $20 million.

A group of law firms representing plaintiffs who sued for similar claims in Delaware are up in arms that the deal in Manhattan is a shareholder sellout. But while the settlement is problematic, another federal securities lawsuit out there is the real billion-dollar case. This case is based on false statements in Bank of America’s proxy solicitation for approval of the Merrill acquisition. This is where the real money is.

So why is there a difference in the potential winnings in the shareholder cases and the federal securities case?

The shareholder cases largely comprise state law claims against the bank’s board and executives brought in the Delaware Chancery Court and the Federal District Court in Manhattan.

In those cases, the plaintiffs contend that the bank’s board breached its fiduciary duties by approving the acquisition and failing to try to terminate the deal based on Merrill’s poor performance in the fall of 2008. The plaintiffs also assert that board members failed to disclose the compensation to be paid at yearend to Merrill employees and failed to disclose Merrill’s interim and yearend results in a timely manner.

The shareholder cases are in turmoil. The Delaware plaintiffs are calling the $20 million settlement in the Manhattan case grossly inadequate.

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