Europe's Largest Pension Fund Sues BofA over Merrill Lynch Deal

The suit, filed in the United States District Court for the Southern District of New York, claims proxy materials to solicit shareholder votes in seeking approval for the Merrill Lynch deal negligently failed to disclose that BofA had approved a secret bonus schedule giving authority to Merrill to pay bonuses up to $5.8 billion to Merrill employees, negligently failed to disclose BofA’s inadequate due diligence performed prior to signing the agreement to acquire Merrill, negligently failed to disclose that BofA had internally written down Merrill’s goodwill by $2.3 billion, and negligently failed to disclose massive fourth-quarter losses mounting at Merrill prior to the December 5, 2008, shareholder vote.      

In addition, the complaint says BofA further negligently failed to cure these misstatements and omissions before the December 5 vote, as required by the federal securities laws, when they learned of additional record losses accumulating at Merrill after the November 3 proxy had been mailed. The losses were later disclosed to be $21.5 billion ($15.8 billion on an after-tax basis) – more than half of the $29.1 billion deal value as reported by BofA.      

According to the suit, had BofA shareholders known of these material facts, they would not have voted for the proposed acquisition at the shareholder vote on December 5, 2009. When the public started to learn the truth after the shareholder vote, BofA’s share price plummeted, erasing billions of dollars of shareholder equity.