COLUMBUS, Ohio (Legal Newsline) - Ohio Attorney General Richard Cordray applauded a federal court ruling that allows the State to proceed with a lawsuit against Bank of America.
The ruling by U.S. District Judge P. Kevin Castel, of New York, makes it possible for Ohio's pension funds and allied pension systems to go ahead with a lawsuit that alleges that the defendants committed securities fraud by issuing false proxy statements.
The case could possibly recover billions of dollars for the pension systems shareholders, Cordray said.
The lawsuit alleges that, during merger negotiations, Bank of America agreed to let Merrill Lynch pay nearly $5.8 billion in accelerated year-end bonuses to a number of its executives and employees. Bank of America, however, failed to tell its shareholders about this prior to voting for the merger's approval.
The lawsuit alleges that senior executives at both companies were aware billions of dollars in loses suffered by Merrill Lynch just two months before the merger vote, but did not disclose the losses to investors.
"The court's ruling is a major win not only for Ohio teachers, public employees and all Bank of America shareholders, but it also is a win for shareholders of every company and for our financial system," Cordray said.
"The court ruled that companies can not pick and choose what they will tell their shareholders. Companies will not be allowed to hide exorbitant bonuses and huge losses from their shareholders. We will continue to move forward aggressively with this action to hold these companies and executives accountable."
The court's ruling allows fraud claims to proceed against Bank of America, Merrill Lynch and their respective CEOs at the time - Ken Lewis and John Thain - for allegedly failing to disclose the agreement to pay up to $5.8 billion in discretionary bonuses ahead of the vote. It also allows claims to proceed against Lewis and Bank of America for allegedly omitting the bonus arrangement in dealings with the shareholders.
Certain securities fraud claims, including claims relating to the failure to disclose Merrill Lynch's fourth-quarter 2008 losses, were dismissed by the district court.
"In the order, Judge Castel held that liability under the false proxy statement claims in this case could be imposed if negligence is shown," Cordray said.
"He squarely rejected the defendants' position that the lead plaintiffs must make a more stringent showing of 'scienter'-knowing or reckless intent to deceive or defraud. We are looking forward to developing evidence against the defendants under this negligence standard."
The lead plaintiff group includes the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, the Teacher Retirement System of Texas and two European public pension funds.