Recently, Bank of America Corp. settled a class action lawsuit filed by its shareholders for $2.43 billion. The suit arose after Bank of America’s acquisition of Merrill Lynch & Co. in 2009 for $18.5 billion.
In the lawsuit, shareholders contended that BofA acted improperly following the acquisition, failing to disclose information regarding Merrill’s losses during the last quarter of 2008 and bonuses paid to Merrill Lynch employees.
The settlement agreement represents the largest amount from a class action lawsuit by shareholders following the economic downturn that began in 2008. In addition to the monetary settlement, BofA agreed to revise its “corporate-governance policies.”
Following the acquisition, many criticized BofA for failing to inform its shareholders about the significant losses suffered by Merrill Lynch immediately before the vote to acquire the company was performed. Warren Buffet referred to the price paid by BofA for the acquisition as “crazy.” The Ohio attorney general explained that while shareholders were told there would be losses, they were not given a sense of how large the losses would be. He stated, “This would be akin to telling someone to watch out for a pothole when they were about to fall into the Grand Canyon.”
As a result of the settlement, Bank of America will have $1.6 billion in litigation expenses during the third quarter of 2012. Estimates show that the bank will incur a reduction in earnings between 17 and 28 cents per share. The class includes “all investors who held the bank’s common stock and call options from September 18, 2008 to January 21, 2009.”
Source: Bloomberg Businessweek, “BofA to Pay $2.43 Billion to End Investor Lawsuit Over Merrill,” Zachary Tracer and Bradley Keoun, September 28, 2012.
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