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Bank of America’s $2.43 Business Law Violation Settlement Approved

Last September, Bank of America Corp. had agreed to a $2.43 billion settlement in a class-action lawsuit filed by investors alleging Bank of America of committing business law violations regarding the acquisition of Merrill Lynch.
This settlement has now been approved by a federal judge in New York, which brings to a close one of the last and biggest aftershocks of the 2008-09 subprime mortgage crash and subsequent credit crisis in the financials sector.
Back in September 2008, Bank of America had announced the acquisition of Merrill Lynch in what was a $50 billion al-stock deal. This was on the same day that Lehman Brothers declared bankruptcy, and the Bank of America deal with Merrill Lynch was seen at that time as essential to stabilize the markets.

However, the lawsuit against Bank of America by a group of five institutional investors including the teacher retirement funds of Texas and Ohio accused Bank of America of issuing misleading and false statements about the financial health of Merrill Lynch and its bonus payout system for employees.

The main basis for the lawsuit was that after being acquired, Merrill Lynch declared a loss of $15.84 billion for the fourth quarter of 2008, while handing out $3.62 billion in bonuses to employees. If Bank of America had not agreed to the $2.43 billion settlement, the case would have gone to trial in Oct 2012 with the plaintiffs seeking $20 billion in damages.


Bank of America has not admitted to any wrongdoing, and said the settlement was agreed to in order to eliminate the impact of the uncertainty of the litigation. As part of the approval process, the federal judge in Manhattan also approved $160.5 million in legal fees and other expenses for the legal teams representing the plaintiffs.
Bank of America has put aside $40 billion for litigation, mortgage buybacks and write downs related to its 2008 acquisitions of Countrywide Financial Corp and Merrill Lynch. This $2.43 billion settlement resolves only one part of the related legal issues over these acquisitions.   

Did you know?
Breach of fiduciary duty is commonly used by investors to sue company officials even if there is no fraud or legal violation of business law.
A charge of breach of fiduciary simply needs to prove that company officials acted against the best interests of the company and its shareholders, and this resulted in damage to the investor.