Bank of America Corp
In a Monday filing with Manhattan federal court, the largest U.S. bank said it was widely understood from Merrill's public disclosures and media reports that Merrill would award billions of dollars of year-end bonuses, despite a full-year loss that would reach $27.6 billion.
There was no false or misleading statement or omission in a proxy statement for voting shareholders, it said.
The defense was made in a filing with the federal court in Manhattan, where U.S. District Judge Jed Rakoff this month rejected the bank's $33 million settlement of an SEC civil lawsuit accusing it of misleading shareholders by not disclosing it had authorized up to $5.8 billion of bonuses.
Rakoff demanded many more details about who knew what and when about the bonuses, including the decision not to reveal the payouts before the merger closed on Jan 1.
The SEC is expected on Monday to file its own papers regarding the settlement.
The bonuses have been the focus of Congressional hearings and a probe by New York Attorney General Andrew Cuomo.
Controversy over the payouts have added to pressure on Kenneth Lewis, the bank's chief executive, over the Merrill merger. Since April, Lewis has lost his job as chairman and more than half of his long-supportive board of directors. The bank has added five new directors.
In Monday's filing, Bank of America said Merrill regularly disclosed its intention to pay bonuses in a variety of filings, and that these amounts would be similar to 2007 levels.
It also said a proxy filing gave shareholders notice of a negative covenant in the merger agreement that any bonus restrictions would be subject to exceptions.
The intention of Merrill Lynch & Co Inc to pay incentive compensation for 2008 was disclosed and was part of the 'total mix' of information available to shareholders, the bank said.
Bank of America spokesman Larry Di Rita declined to elaborate on Monday's filing.
At a hearing on August 10, Rakoff said the $33 million settlement seemed to be lacking in transparency and strangely askew, and might not prove remotely reasonable if the SEC were right that the bank lied about the bonuses.
Rakoff said he could not reconcile the SEC's position that Bank of America effectively lied to shareholders with its decision not to force the bank to admit wrongdoing.
Noting that the government has pumped $45 billion into Bank of America from the federal bank bailout plan, Rakoff said that one might infer that public money was used, in effect, to pay the bonuses.
Rakoff also questioned why Lewis and John Thain, who was Merrill's chief executive, should not be held accountable for the decision not to disclose the bonuses.
In 2003, Rakoff forced a revision of a similar SEC settlement with WorldCom Inc over an accounting fraud, increasing the payout to $750 million from $500 million.
Bank of America shares were down 11 cents at $17.35 in late afternoon trading on the New York Stock Exchange.
The case is SEC v. Bank of America Corp, U.S. District Court, Southern District of New York (Manhattan), No. 09-6829.
(Reporting by Jonathan Stempel; Additional reporting by Elinor Comlay and Joe Rauch; Editing Bernard Orr)