Bank of America settles Merrill Lynch claims for a record $2.4 billion

Bank of America Corp. has agreed to pay $2.43 billion to settle alleged federal securities law violations involving its 2009 acquisition of Merrill Lynch & Co. Inc. Plaintiffs attorneys called it the largest settlement of its kind to date.

A group of state and foreign pension funds sued Bank of America in 2009, accusing the company of making false statements about its health and the health of Merrill Lynch. The settlement, subject to approval by U.S. District Judge P. Kevin Castel, was announced on Friday, less than a month before a trial was scheduled to begin in the U.S. District Court for the Southern District of New York.

The settlement would bring to a close the highest-profile lawsuit to emerge from the credit crisis. Attorney Kevin LaCroix of liability management company RT ProExec said via email that it likely would set the bar higher for settlements in similar cases.

“So many of the larger settlements were associated with the era of the corporate scandals from a decade ago,” he said. The Bank of America settlement could “make it harder for future litigants to argue that settlements of this magnitude were an attribute of that earlier time and are therefore are not relevant to later events.”

However, Susman Godfrey partner Bill Carmody didn’t expect a surge in high-dollar settlements to result. He noted that changes in federal securities laws have made it tougher for plaintiffs to prevail. “It’s a great result for the plaintiff’s side, but it’s an aberrational result, I think, on an aberrational set of facts,” he said. “This was a monster transaction.”

Still, he agreed that the outcome was a sign that massive settlements remained possible. With the right set of facts, he said, “you can still settle for a big number.”

According to a joint statement by the plaintiff pension groups, the settlement is the largest of its kind to resolve a claim for alleged misstatements in connection with an attempt to secure shareholder votes. It’s also believed to be the one of the four largest settlements funded by a single corporate defendant for violation of federal securities laws.

“Not only did we accomplish an excellent financial recovery, but other companies will look at the result here and think twice about not fully disclosing all necessary information to their shareholders,” Ohio Attorney General Mike DeWine said in a written statement. Ohio, Texas, Dutch and Swedish pension funds served as lead plaintiffs in the case.

Bank of America, in a written statement, continued to deny any wrongdoing. “Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” chief executive officer Brian Moynihan said.

The plaintiffs were represented by Bernstein Litowitz Berger & Grossman, Kaplan Fox & Kilsheimer and Kessler Topaz Meltzer & Check. Attorneys and representatives from those firms either declined to comment, referring questions to the plaintiff pension funds, or could not be reached. Saxena White represents plaintiffs is an accompanying derivative case in Delaware Chancery Court that is separate from the settlement announced on Friday.

Bank of America has been represented by Paul, Weiss, Rifkind, Wharton & Garrison; Cleary Gottlieb Steen & Hamilton; and Wachtell, Lipton, Rosen & Katz. As reported by NLJ affiliated publication Litigation Daily, Paul Weiss joined the defense team in April after Bank of America suffered losses on several important motions, including failure to defeat class certification.

Bank of America announced its proposed acquisition of Merrill Lynch in September 2008. The plaintiffs accused the bank of failing to disclose billions of dollars in financial losses that Merrill Lynch had suffered before the shareholders voted. Shareholders voted for the acquisition in December 2008.

The shareholders also pointed to an alleged undisclosed agreement allowing Merrill Lynch to pay up to $5.8 billion in bonuses to company executives. In August 2009, Bank of America agreed to pay $33 million to settle charges related to alleged nondisclosure with the U.S. Securities and Exchange Commission.

Even if Castel approves the settlement announced on Friday, Bank of America’s Merrill Lynch-related woes won’t be over. A separate lawsuit filed by the New York attorney general’s office remains pending before New York County, N.Y., Supreme Court Judge Marcy Friedman.

Milberg partner Andrei Rado said he thought the record was clear that Bank of America knew that Merrill Lynch’s numbers were off. “They still went ahead with the merger without correcting the information out there,” he said.

The recovery is “a big number, and hopefully it means that courts are still open to securities class actions where shareholders are wronged,” Rado said. “The last 10 years or so, it’s just been one thing after another: Enron, the accounting scandals, the options backdating and then the credit crisis cases — and now you’ve got Libor. It’s just more and more.”

Contact Zoe Tillman at [email protected].