Judge Rejects New SEC Claims against BofA

The lawsuit over bonuses paid to Merrill Lynch executives is set for trial on March 1 (see “It’s a No-Go for BofA Settlement with SEC”).

U.S. District Judge Jed Rakoff said yesterday the SEC must file a separate lawsuit in order to pursue the claims that BofA failed to disclose “extraordinary losses” by Merrill Lynch in the weeks before shareholders voted on the deal in 2008, according to the news report (see “SEC Widens Probe of BofA“).

Rakoff said “there is no impediment” to the SEC filing the new claims in a second case, and that a trial date could be set as early as this summer, Bloomberg reported. SEC spokesman John Nester said the Commission intends to promptly file the new allegations.

Merrill Lynch was acquired by Bank of America January 1, 2009, in a deal that has been under scrutiny by both the SEC and the New York Attorney General’s office (see “BofA Fires Back at Cuomo”).

The SEC recently filed its second amended complaint against the bank. The complaint, made public yesterday, alleges that BofA learned prior to the December 5, 2008, shareholder meeting vote that Merrill Lynch experienced a net loss of $4.5 billion in October and estimated that it had experienced billions of dollars of additional losses in November. According to the complaint, the actual and estimated losses together represented approximately one-third of the value of the merger at the time of the shareholder meeting and more than 60% of the aggregate losses Merrill Lynch sustained in the preceding three quarters combined.

“Bank of America’s failure to disclose this information violated its undertaking to update shareholders concerning fundamental changes to previously disclosed information, and rendered its prior disclosures materially false and misleading,” the SEC said.

The case is Securities and Exchange Commission v. Bank of America Corp., 09-cv-06829, U.S. District Court, Southern District of New York (Manhattan).