Earlier this week, Judge Rakoff refused to allow the SEC to amend its previously-filed complaint against the Bank of America Corp. related to its merger with Merrill Lynch. Denying the motion to amend, the judge also stated that the SEC could file a new action if it chose to do so. It chose to do so.
A quick refresher is in order. As the Securities Lawyer Blog has noted in prior posts, the case has been moving forward with Judge Rakoff's firm management in one of the most well-reported cases in recent years. All of this after the parties had reached a settlement that was ultimately rejected by the judge.
The case is of significant interest to the American public and to industry insiders for many reasons, not the least of which is the allegation that substantial bonuses to Merrill were not disclosed to shareholders prior to the merger vote in December 2008.
Back to the recent motion. The SEC sought by amendment, to present a charge that BofA failed to disclose "extraordinary losses" at Merrill prior to the merger vote.
Although Judge Rakoff refused to allow the amendment to the SEC's complaint, he gave some solid reasons for this decision. First, he intends to move forward with a March 1, 2010 trial date on the original complaint. Second, he expressed concern that new allegations with new underlying facts could confuse the jury and the bank should be permitted time to assess the allegations and present a defense to it.
The SEC's litigation release details the charges against Bank of America which include the allegation that the bank violated "federal proxy rules by failing to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve a merger between the two companies.
The SEC's complaint alleges that Bank of America learned prior to the shareholder vote that Merrill Lynch had incurred a net loss of $4.5 billion in October 2008 and estimated billions of dollars of additional losses in November.
The SEC claims that BofA "erroneously and unreasonably concluded that no disclosure concerning these extraordinary losses was required as shareholders were called upon to vote on the proposed merger with Merrill Lynch." The bank's failure to disclose this information, according the SEC, "violated its undertaking to update shareholders concerning fundamental changes to previously disclosed information, and rendered its prior disclosures materially false and misleading."
In the litigation release, the SEC acknowledged the assistance of the US Attorneys' offices in the Southern District of New York and Western District of North Carolina, the Federal Bureau of Investigation, and the Office of The Special Inspector General for the Troubled Asset Relief Program.
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