Merrill Lynch & Co. will pay $550 million to settle claims by the Ohio State Teachers Retirement System and other shareholders that it misled investors about assets backed by subprime mortgages. Merrill, which was acquired by Bank of America Corp., will pay $475 million in cash to investors including the teachers union fund and $75 million in cash to settle claims by company employees who held stock in certain retirement plans. The company made this known last month in a filing with the U.S. Securities and Exchange Commission. Claims in the suits focused on subprime-related losses and related disclosures between September 2006 and December 2008.
The company was accused of issuing false and misleading statements about collateralized debt obligations and other assets backed by subprime mortgages, artificially inflating Merrill Lynch’s shares, according to the complaints filed in federal court in Manhattan. Ohio Attorney General Richard Cordray said in a statement: “Many Ohioans saw the value of their retirement savings take a nosedive as a result of improper practices on the part of financial giants.”
The settlements don’t cover derivative shareholder or bondholder claims. The company is defending those lawsuits, according to the SEC filing. Incidentally, the U.S. government will invest $20 billion in Bank of America and guarantee $118 billion of assets to help the company absorb Merrill and prevent the financial crisis from deepening. While the board of the Ohio state teachers fund has approved the settlement, it must also be approved in federal court in Manhattan.
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