The Securities and Exchange Commission sued Bank of America Corp
The SEC filed its civil lawsuit on Tuesday in Manhattan federal court, a day after U.S. District Judge Jed Rakoff refused to let it add charges to its case accusing the largest U.S. bank of misleading shareholders about $3.6 billion of bonuses that Merrill paid out.
In the latest lawsuit, which was expected, the SEC accused the bank of violating federal proxy rules by failing to tell shareholders prior to a December 5, 2008 vote that Merrill had lost $4.5 billion that October and billions more in November.
The SEC said Bank of America kept shareholders in the dark and should have disclosed fundamental changes in Merrill's health. It is seeking a fine and other remedies.
Bob Stickler, a spokesman for the Charlotte, North Carolina-based bank, said: These charges are totally without merit. We intend to vigorously defend ourselves.
Merrill lost $15.8 billion in the fourth quarter of 2008. The merger closed on January 1, 2009.
The latest lawsuit may complicate new Bank of America Chief Executive Brian Moynihan's efforts to resolve lawsuits and probes over Merrill.
James Cox, a Duke University securities law professor, said shareholders in class-action lawsuits could pounce on information released through any accord with the government.
The biggest challenge Bank of America has, certainly in government settlements, is to disclose as little as possible that is not public knowledge, he said.
In private litigation, investors must allege a strong inference of fraud and cannot do it through information the defendants provide in the discovery process, Cox added. Thus, information set forth by a governmental entity as part of any settlement could be useful to plaintiffs.
Neither SEC lawsuit names individual bank executives or directors as defendants. Many are defendants in shareholder lawsuits, and have been targeted by Congress and regulators like New York Attorney General Andrew Cuomo.
The New York Times, citing people with knowledge of the matter, said Bank of America is in talks with Cuomo's office to settle his probe on the bonuses. Efforts to reach Cuomo's office for comment were unsuccessful.
On Monday, Rakoff refused to expand the bonus lawsuit to add charges over fourth-quarter losses, saying a jury might be confused. That trial is scheduled to begin on March 1.
In September, Rakoff rejected the SEC's proposed $33 million settlement with Bank of America over the bonuses.
Cox said there is no legal impediment to the SEC pursuing separate lawsuits over the Merrill takeover in a single court.
Bank of America shares were down 63 cents, or 3.7 percent, at $16.30 in afternoon New York Stock Exchange trading.
The new case is SEC v. Bank of America Corp, U.S. District Court, Southern District of New York, No. 10-0215. The earlier case in the same court is No. 09-6829.
(Additional reporting by Grant McCool; editing by Andre Grenon and Gerald E. McCormick)