(Reuters) - Bank of America Corp (BAC.N) directors rejected allegations by unhappy shareholders that their proposed $20 million settlement of litigation over the purchase of Merrill Lynch & Co was made “on the cheap” and was the product of collusion.
The accord would resolve a New York lawsuit claiming the bank’s board, including former Chief Executive Officer Kenneth Lewis, had hidden how Merrill was headed toward an eventual $15.84 billion quarterly loss, even as it was paying $3.6 billion of bonuses.
The settlement also called for governance changes, including the creation of a board-level committee of independent bank directors to assess major new transactions, court papers show.
Bank of America did not reveal the scope of Merrill’s losses until after shareholders approved the merger in December 2008.
In a Friday night filing in the U.S. District Court in Manhattan, directors said the objecting shareholders had no authority to block the settlement, which the shareholders fear would wipe out their claims in a similar lawsuit in Delaware.
The directors said the shareholders had waited an “inexcusably” long three years to get involved in the case and called their $5 billion damages claim “outrageous.”
The directors also said there was “nothing collusive” about settlement talks.
“At bottom, the Delaware plaintiffs’ arguments amount to nothing more than a dressed-up objection to the adequacy of the proposed settlement,” the directors said.
“The Delaware plaintiffs have shown no grounds for (an injunction), nor demonstrated that they will be irreparably harmed by this court’s consideration of the proposed settlement,” the directors added.
U.S. District Judge Kevin Castel in Manhattan will decide whether to approve the settlement.
Lead plaintiffs in the New York case supported the directors’ request. These plaintiffs are the Hollywood (Florida) Police Officers’ Retirement System and the Louisiana Municipal Police Employees’ Retirement System.
A lawyer for the Delaware shareholders did not immediately respond to a request for comment.
The Delaware shareholders have called the proposed payout grossly inadequate, saying it represented just 4 percent of the directors’ $500 million in insurance coverage.
Both cases are derivative lawsuits brought on behalf of Bank of America. Payouts would go to the Charlotte, North Carolina-based lender rather than to shareholders.
Castel also oversees nationwide shareholder class-action litigation involving the Merrill takeover. Defendants include Bank of America, Lewis and former Merrill CEO John Thain.
The January 1, 2009, merger forced Bank of America to get a second federal bailout and contributed to a 93 percent drop in its share price over six months.
The cases are In re: Bank of America Corp Stockholder Derivative Litigation, Delaware Chancery Court, No. CA4307; and In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (PRISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.
Reporting By Jonathan Stempel in New York; Additional reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Von Ahn