BoA ordered to prepare for trial

BoA ordered to prepare for trial over Merrill merger

By James Quinn, US Business Editor New York
Telegraph, 14 Sep 2009

Bank of America has been ordered to prepare itself for a possible trial after a New York judge ruled that a proposed settlement with the US Securities and Exchange Commission (SEC) over the fall-out from its $50bn (£30bn) purchase of Merrill Lynch was contrived.

BoA agreed to buy exactly Merrill a year ago, at the height of last Autumn's financial crisis

BoA – which agreed to buy exactly Merrill a year ago, at the height of last Autumn's financial crisis – last month agreed with the SEC to pay a $33m fine to settle charges that it misled its own investors over the payment of $3.6bn to Merrill employees in a year in which the investment bank lost $27.6bn.

However, Judge Jed Rakoff, who was expected to rubber-stamp the settlement, on Monday rejected the agreement between the pair. BoA shares immediately fell 28 cents to $16.69 on the news, but rebounded to close the day up 2 cents at $16.99.

In a strongly worded ruling, the judge said the settlement "does not comport with the most elementary notions of justice and morality" because BoA's investors are burdened with a financial penalty for alleged misconduct carried out by the bank's senior management.

He also accused the two sides of concocting the settlement to meet their own ends, saying it gave "the distinct impression that the proposed consent judgment was a contrivance designed to provide the SEC with the facade of enforcement and the management of the bank with a quick resolution of an embarrassing inquiry – all at the expense of the sole alleged victims, the shareholders."

Judge Rakoff told both sides to prepare for a possible trial, to begin no later than February 1, 2010, at which senior officials from BoA including chief executive Ken Lewis, as well as Merrill's former chairman John Thain, could be called upon to give evidence.

Mr Thain, who departed the merged entity over the furore which ensued news of the bonuses emerging, was instrumental in pushing for them to be made to Merrill staff ahead of the BoA takeover on January 1 of this year.

Meanwhile, Monday marked the latest deadline by which BoA had to provide further details about the Merrill merger to New York Andrew General Andrew Cuomo, who has already threatened senior BoA officials with possible fraud charges if they do not comply with his various requests.