Yesterday, the federal judge in Manhattan ordered Bank of America Corporation (BAC) to deal with a shareholders’ class-action lawsuit. The lawsuit accused BofA along with some of its senior managers and directors of misleading investors about the takeover of Merrill Lynch & Co. as well as the amount of Merrill’s losses and bonus payouts in 2008.
The shareholders of BofA filed a lawsuit against the company in federal court in Manhattan in 2009. They claimed that it has concealed information about bonuses to Merrill employees and also kept secret the financial losses suffered in the fourth quarter of 2008. The complaint lodged claims that BofA deceptively misrepresented the facts by providing materially misleading statements.
Moreover, BofA was forced in January 2009 to take a second bailout from the federal Troubled Asset Relief Program due to Merrill losses. This led to 93% drop in the bank’s stock price.
BofA denied certification, arguing that the investors have no evidence to verify that losses were met after relying on substantially misleading omissions, but was turned down by the federal judge.
Investors winning the class-action status include owners of BofA’s stock or call options between September 2008 and January 2009, and holders of common stock on October 10, 2008, who got the permission to vote on the Merrill acquisition.
Moreover, class certification of the suit filed will help plaintiffs to proceed in a group, rather than individually, thereby reducing costs for them.
Last week, The Goldman Sachs Group Inc. (GS) was also ordered by the federal judge in Manhattan to deal with a securities class-action lawsuit. The lawsuit accused Goldman of misleading investors relating to mortgage-backed securities worth $698 million.
The complaint lodged claims that Goldman deceptively sold the sub-prime mortgage-linked securities that gradually failed and also misrepresented the value of instrument by providing materially misleading statements.
Among other banks, Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HBC) and M&T Bank Corp. (MTB) have also been legally accused for misrepresenting documents related to mortgage-backed securities and other losses.
The increasing number of lawsuits could dent financials of banks in 2012. BofA currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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