Ohio AG takes lead role in bank’s suit

September 29, 2009 at 12:00a.m.

COLUMBUS (AP) — Bank of America Corp. executives improperly concealed billions of dollars in losses and billions in bonuses paid by Merrill Lynch before a shareholder vote on their proposed merger, Ohio’s attorney general argued in a class-action securities lawsuit he described as among the largest in history.

Attorney General Richard Cordray filed a complaint against Bank of America and its executives late Friday, the first since Ohio was awarded the lead role in a lawsuit that includes the state’s two largest public-employee pension funds and the Teacher Retirement System of Texas.

The complaint, filed in U.S. District Court in New York, includes allegations made in previous complaints against Bank of America by other shareholder interests. It includes new details about conversations and communications between Bank of America and Merrill Lynch executives that have surfaced recently in media reports, congressional testimony and with the Securities and Exchange Commission.

“This is part of a concerted and committed effort in the Ohio attorney general’s office to hold Wall Street accountable,” Cordray said Monday. “The amount of shareholder value affected negatively here is about as great as has been alleged in any case ever.”

He said the suit seeks unspecified damages that could be in the billions of dollars.

“We are confident that we disclosed all that was required and look forward to presenting our position to the court,” said Bank of America spokeswoman Shirley Norton. Shareholders voted to approve the $50 billion acquisition of Merrill Lynch on Dec. 5, 2008.

The lawsuit alleges that Bank of America agreed to allow Merrill Lynch to pay as much as $5.8 billion in year-end discretionary bonuses to executives and employees but failed to disclose the bonuses before the merger vote.

It also alleges that Bank of America and Merrill Lynch executives were aware of billions of dollars in losses suffered by Merrill Lynch in the two months before the merger vote but failed to disclose them.

Following the vote, Bank of America Chief Executive Kenneth Lewis obtained a commitment from the federal government for $138 billion in bailout money, the complaint said. On Jan. 16, Bank of America announced that Merrill Lynch suffered more than $21 billion in losses in the last quarter of 2008, and that Bank of America took a $1.8 billion loss. Bank of America share prices tumbled shortly afterward.

Paul Rose, an Ohio State law professor and securities litigation expert, believes the lawsuit has merit but also spots political undertones.

“I don’t think it’s necessarily a weak case by any means, and I don’t think it’s brought only for political purposes,” Rose said. “I think this is a case that you’d see even if we weren’t involved in the current financial crisis.”