Top executives at Bank of America Corp. did not tell shareholders just before a 2008 vote on its purchase of Merrill Lynch & Co. that Merrill's losses were mounting and expected to weigh down earnings for years, papers filed in private shareholder litigation show.
But the bank and former Chief Executive Kenneth Lewis said in their own court papers that they should not be liable to shareholders who claimed to have lacked information that they needed to vote on the once $50 billion merger.
Lewis also said he had been advised by the bank's law firm and chief financial officer that no disclosure was necessary.
The papers, including sworn testimony from Mr. Lewis, were filed on Sunday night in class-action litigation accusing the second-largest U.S. bank of fraudulently misleading holders of shares and call options about Merrill's losses and bonus payouts.
They may also strengthen the contention that Bank of America withheld material information just before the Dec. 5, 2008, merger vote, a characterization that Mr. Lewis resisted in a March 27 deposition by the shareholders' lawyers.
"In all cases of securities fraud, the fight is always about who knew what, when," said Hillary Sale, a law and management professor at Washington University in St. Louis School of Law. "This deposition shows that before the actual shareholder vote, there was knowledge that the numbers were different. Call it large, call it substantial, but it is likely material."
The New York Times previously reported on some of the court papers, which were filed with the federal court in Manhattan.
Other defendants are former Chief Financial Officer Joe Price; former Merrill Chief Executive John Thain, and outside Bank of America directors. A trial before U.S. District Judge Kevin Castel is scheduled for Oct. 22.
Disclosures surrounding Merrill have already been the subject of much litigation, including actions filed by the U.S. Securities and Exchange Commission, as well as congressional hearings.
"There is nothing new here," bank spokesman Lawrence Di Rita said, referring to Sunday's filings. "It was clear that Merrill Lynch's deteriorating financial condition was widely appreciated by shareholders before voting for approval."
In court papers, the bank added that shareholders failed to show damages as a result of "any alleged impairment to voting rights." It also said that to the extent it overpaid for Merrill, it is Bank of America that can assert that claim.
Andrew Ceresney, a lawyer for Lewis, declined to comment. Court papers said his client relied on Price and the law firm Wachtell, Lipton, Rosen & Katz as to how much to disclose.
Lawyers for Messrs. Price, Thain and the outside directors, as well as Wachtell, did not respond to requests for comment. Steven Singer, a lawyer for the shareholders, declined to comment.
Merrill's fourth-quarter loss at the time of the vote was expected to be $9 billion, according to court papers, and ultimately reached $15.84 billion.
It forced Charlotte, N.C.-based Bank of America to get a second taxpayer bailout
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