On August 3, 2009, the Securities and Exchange Commission (“SEC”) announced that it was entering into a Consent Judgement with Bank of America Corporation (“BoA” or the “Company”) in connection with the Company’s issuance of a joint proxy statement filed with the SEC as to BoA’s acquisition on Merrill Lynch & Co., Inc. (“Merrill”) on January 1, 2009.
According to the SEC’s Complaint, on November 3, 2008, in a joint proxy statement soliciting votes from BoA and Merrill shareholders for the merger of the two companies. In the proxy statement, BoA represented that Merrill had agreed to refrain from paying year-end performances bonuses or other discretionary incentive compensation to its executives prior to the closing of the merger under BoA gave its consent. However, the SEC alleges that this representation was false insofar as it was contrary to the merger agreement which allowed Merrill to pay up to $5.8 billion, or approximately 12% of the total consideration of the $50 billion deal. Although the merger agreement was included as an exhibit to the joint proxy agreement distributed to 283,000 shareholders of both companies, the provision to allow Merrill to pay the discretionary bonuses was in a separate schedule of the merger agreement which was “omitted from the proxy statement and whose contents were never disclosed before the shareholders’ voted on the merger on December 5, 2008.” As a result, the SEC contends that BoA violated Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) and Rule 14a-9, 17 C.F.R. §240.14a-9, promulgated thereunder.
In settling the SEC’s charges, BoA neither admitted nor denied the allegations and consented to the entry of a judgment that permanently enjoins BoA from violating the proxy solicitation rules: Section 14(a) of the Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. BoA also agreed to pay a $33 million financial penalty.
S.E.C. v. Bank of America Corp., Case No. 09 Civ. 6829 (S.D.N.Y.) (Rakoff, J.).
A class action regarding BoA’s disclosures in the Merrill merger is currently pending in the Southern District of New York before District Judge Denny Chin. On June 30, 2009, Judge Chin entered an Order organizing the class litigation.
In re Bank of America Corp. Securities, Derivative and ERISA Litigation, Case No. 09 MDL 2058, No. 09 Civ. 580 (S.D.N.Y.) (Chin, J.)
