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HGT Law Represents Australian Institutional Investors Seeking To Opt Out Of The Bank of America-Merrill Lynch Class Action

On March 5, 2013, our firm filed an objection on behalf of a group of three Australian institutional investors who are seeking to exclude themselves from, i.e.“opt out” of, the class action entitled In Re Bank of America Corp. Securities, Derivative & Employment Retirement Income Security Act (ERISA) Litigation, 09 MDL 2058 (PKC) (the “Class Action”).  To see why we are seeking to opt out of the Class Action, read the objection here.

The Class Action arises from certain extraordinary events that occurred at the height of the global financial crisis.  On September 15, 2008, Bank of America Corp. (“BoA”) announced that it would merge with Merrill Lynch & Co., Inc. (“Merrill”).  However, based on testimony and other evidence uncovered in the course of inquiries by the U.S. Congress, the New York Attorney General and the U.S. Securities and Exchange Commission over the last several years, it appears that, in the lead-up to the shareholder vote on the merger,  BoA’s directors and officers failed to tell their own shareholders the critical facts that:

  • Merrill was suffering enormous losses in the lead-up to the merger, including losses of at least $15.5 billion for the months of October and November 2008 alone, and projected losses of another several billion dollars for December 2008;
  • BoA agreed to allow Merrill to accelerate the payment of up to $5.8 billion in bonuses to Merrill employees before the merger closed, effecting an enormous transfer of wealth to Merrill employees just before the merger closed and before the losses were made public.

Unaware of these critical facts, on December 5, 2008, BoA’s shareholders approved the acquisition of Merrill for $50 billion or $29 per share, a substantial 70% premium over the price at which Merrill traded just before the announcement of the merger.

Within days of the shareholder vote, BoA’s CEO, Kenneth D. Lewis (“Lewis”), internally acknowledged that Merrill’s losses were so significant that BoA could not proceed with the merger, with losses at Merrill now projected to be $21 billion for the fourth quarter of 2008 (compared with the $50 billion purchase price).  However, Lewis proceeded with the merger after receiving pressure from both the U.S. Treasury Secretary and the Federal Reserve Chairman, who made it clear to Lewis that any decision to back out of the merger would result in regulatory action to remove Lewis, the senior management and the entire Board from BoA. As a result, the decision was made to proceed with the merger,completely circumventing the fundamental duties of the company’s directors and senior management to their shareholders.

Only after the merger closed on January 1, 2009 did all of the real facts begin to emerge.  From January 9, 2009 to January 20, 2009, as the true facts concerning Merrill’s losses and the diversion of bonuses to Merrill employees came to light, BoA stock lost more than half of its value, falling from $12.99 to $5.10, a market capitalization loss of approximately $50 billion, one of the greatest events of wealth destruction ever seen on U.S. capital markets.

Subsequent to these revelations, numerous class actions were filed against BoA and its directors and officers, and were subsequently consolidated in the Class Action.

On September 28, 2012, BoA announced a $2.43 billion settlement of the Class Action.  The $2.43 billionpales in comparison to the $50 billion loss in market capitalization sustained by BoA’s shareholders, and it is estimated that members of the class will recover only $0.43 per share, before deductions for attorneys’ legal fees and expenses.

Many other institutional investors have already opted out of the Class Action, includingthe New York State Common Retirement Fund; the New York State Teachers’ Retirement System; the Public Employees’ Retirement Association of Colorado; numerous Charles Schwab-managed funds; Stichting Pensioenfonds ABP (Netherlands); International Fund Management S.A. (Luxemburg); Deka International Luxemburg, S.A. (Luxemburg); and Deka Investment GmbH (Germany).

For more information about the Class Action or about our clients’ decision to opt out, please contact us on (212) 572-6434 or via email at info@hgtlaw.com.

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