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(Reuters) - Bank of America Corp directors have reached a definitive settlement of litigation by shareholders, who accused the bank of overpaying for Merrill Lynch & Co, a federal judge said on Wednesday.
In a written order, U.S. District Judge P. Kevin Castel in Manhattan did not reveal the settlement terms, but said the settlement and request for preliminary approval should be filed with his court within 14 days.
According to previously filed court papers, the settlement was expected to total $20 million and resolve claims that Bank of America directors misled shareholders about Merrill's soaring losses, and hid that Merrill was paying $3.6 billion of bonuses at the time.
Among the defendants is Kenneth Lewis, the onetime Bank of America chief executive who engineered the takeover.
Castel said he may delay final approval until after the end of a October 22 trial he oversees in shareholder securities class-action litigation against the Charlotte, North Carolina-based Bank of America itself, where damages could be much larger.
The judge cited three reasons for a delay: a need to decide whether certain damages can be recovered in the class-action case or the director case; the scope of insurance coverage for directors; and a desire to better understand the facts.
Bank of America agreed to buy Merrill on September 15, 2008, at the height of the financial crisis, but the takeover was a factor in the bank's needing a second federal bailout, and suffering a 93 percent drop in its share price in six months.
The takeover closed in January 2009.
A second case against the directors had been brought in Delaware Chancery Court, but shareholders in that case claimed that the $20 million New York settlement was too low and could erase their claims.
Shareholders brought lawsuits against the directors on behalf of Bank of America. Payouts would go to the bank, not to shareholders. It is not clear whether the New York settlement resolves all claims in the Delaware case.
Bank of America spokesman Lawrence Grayson declined to comment. Lawyers for shareholders in the New York and Delaware cases did not respond to requests for comment.
Shares of Bank of America closed Wednesday up 3 cents at $8.14 on the New York Stock Exchange. They traded at $33.74 just before the Merrill takeover was announced, and bottomed at $2.53 in March 2009.
The case is: In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.
Reporting By Jonathan Stempel in New York; Editing by Gary Hill and Leslie Gevirtz