The Second Circuit Court of Appeals last month approved Bank of America Corp.’s record $2.4 billion securities class action settlement over its merger with Merrill Lynch & Co. at the height of the 2008 financial crisis. A three-judge panel said a district court didn’t abuse its discretion by approving the settlement, which was first announced in September 2012. This remains the largest-ever securities class deal related to the financial crisis.
A few of the investors wanted attorneys’ fees limited to three percent of the total settlement. They also said that so-called “representative Plaintiffs” should not have been reimbursed for about $450,000 in legal costs. The objectors had also argued that a notice sent to potential class members should have disclosed the average amount of damages per Bank of America share that the Plaintiffs could recover if they were successful in the case. The panel said it “considered all of [the objectors’] remaining arguments” and concluded “that they are without merit.”
Plaintiffs allege Bank of America and its top executives misled shareholders about its financial health and that of Merrill Lynch before the merger closed in January 2009. In particular, investors have said they were not told at the time that Merrill Lynch faced projected losses of more than $21 billion in the fourth quarter of 2008; that some Bank of America executives who were aware of the losses had attempted to thwart the merger; and that Merrill Lynch had paid its executives $3.6 billion in bonuses.
Once that information came to light, the suit alleged, Bank of America’s stock price fell by more than half over the course of 11 days. Bank of America, for its part, has painted the merger as a shotgun wedding orchestrated by federal banking regulators, who feared the collapse of a Wall Street titan like Merrill could have a domino effect in the teetering industry. The merger agreement was struck the same day that Lehman Brothers Holdings Inc. filed for bankruptcy. The $2.4 billion settlement was approved in April 2013 by U.S. District Judge Kevin Castel, who called it “fair, reasonable and adequate.” As we have come to expect, Bank of America has continued to deny the allegations.
The bank agreed in 2010 to a $150 million settlement with the U.S. Securities and Exchange Commission in a separate suit alleging the bank failed to tell shareholders it had authorized Merrill to pay the bonuses.
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