As you may have heard, Judge Rakoff did not like the proposed SEC settlement with Bank of America (neither did I) in part because it blamed the bank’s lawyers while refusing to waive attorney-client privilege and explain what, exactly, went wrong. A week ago, he rejected it entirely:

In a 13-page order available here

On Tuesday, The New York Times reported:

The finger-pointing in Merrill Lynch’s bonus troubles shifted to a new target on Monday in two court documents that essentially said: blame the lawyers.

Responding to questions posed by a federal judge, Bank of America and the Securities and Exchange Commission said the bank had relied on

AmLawDaily catches Merck passing the reins from Cravath, Swaine & Moore to Williams & Connolly for its petition to the Supreme Court regarding the consolidated Vioxx securities litigation. In a moment, we’ll look at Merck’s (likely very, very expensive) brief, and marvel at the Catch-22 it proposes.

But first, some background, courtesy of the Third Circuit’s opinion

In the world of venture capitalism, Fred Wilson’s blog, “A VC” is essential reading, and Fred is particularly generous with his insight and information about the field.

I read Fred’s blog partly because it’s darn interesting and partly because there are a lot of parallels between venture capitalism and contingent fee litigation. We

It’s an article of faith among many businesses and lawyers: Delaware. It doesn’t matter what the question is. Where should you incorporate? What should the governing law of your contract be? 

Delaware! Delaware’s good for business.


Not necessarily. Much ink has been spilled over why, exactly, businesses constantly incorporate in Delaware and/or insert Delaware into

Kevin LaCroix at The D&O Diary delivers news that surprises no one, a securities class action based upon Bank of America’s untimely disclosure of Merrill Lynch’s catastrophic losses:

As has been well-publicized, within a matter of weeks of closing its acquisition of Merrill Lynch, Bank of America announced previously undisclosed 4Q08 operating losses at Merrill of $21.5 billion that required BofA to obtain an emergency $20 billion cash injection from the U.S. Treasury, as well as an additional $118 billion asset backstop. BofA’s stock market valuation has dropped more $100 billion since the day before the merger was announced through the company’s January 16 earnings release.

As the Wall Street Journal reported (here), questions immediately arose following BofA’s announcement of the Merrill losses, such as why BofA’s CEO Kenneth Lewis "didn’t discover the problems prior to the Sept. 15 deal announcement" and "why he didn’t disclose the losses prior to the vote on the Merrill deal on Dec. 5 or before closing the deal on Jan. 1."

With these kinds of questions circulating, it comes as no surprise that plaintiffs’ attorneys have initiated litigation. There were actually two different lawsuits announced on January 21, 2009 relating to these circumstances. Both of the lawsuits purport to be filed on behalf of persons who held BofA securities on October 10, 2008, the record date for the December 5, 2009 special meeting of shareholders to approve the merger.

LaCroix, no stranger to director and officer liability, has a thorough take on it, and Ideoblog raises the possibility of a "national interest" exception to securities disclosure laws due to the circumstances: on December 17, Lewis had become so concerned that he went to DC to meet with Bernanke and Paulson for guidance, both of whom, Lewis said, "[were] firmly of the view that terminating or delaying the closing…could result in serious systemic harm."

The Fed denied they requested Lewis to keep quiet. Either way, Lewis obviously knew of the trouble by the December 17 meeting with the Fed, but didn’t report the losses publicly until Bank of America’s next earnings statement on January 16. That’s problematic.

The WSJ Law Blog also flags another action, this one brought by Susman Godfrey, alleging the same, with a particular paragraph of interest in their complaint:

As reported in The Wall Street Journal, just three days after shareholders voted to approve the merger, on December 8, 2008, Merrill’s CEO John Thain addressed a meeting of Merrill’s Board of Directors. Thain reported that Merrill suffered significant losses in November, which Thain described as one of the worse months in Wall Street history. Despite the size of these losses, Thain told Merrill’s board the losses were in line with BOA’s estimates. Neither BOA nor Merrill, nor any of the Individual Defendants, ever disclosed any such estimates . . . to their shareholders in the Proxy Statement. Likewise, no loss estimates were disclosed in any subsequent filings.


  • September 15 — Deal is reached. BoA and ML get to work on details.
  • October 31 — Proxy statement issued to shareholders (you can find it here) in conjunction with the special meeting.
  • December 5 — Special meeting of shareholders, who vote to approve the deal.
  • December 8 — Thain tells ML board of significant losses in November, losses "in line with BOA’s estimates."
  • "Mid December" — Lewis learns of ML’s losses.
  • December 17 — Lewis meets with Bernanke and Paulson
  • January 16 —  BoA discloses losses to shareholders.

Lewis & Thain’s stories are not consistent. Either:

  1. BoA didn’t provide ML estimates like Thain suggested;
  2. Lewis didn’t know about BoA’s own estimates, even though Thain did; or,
  3. Lewis knew sbout ML’s losses sometime significantly before December 8.

The plaintiffs are betting on #3, though they could make hay out of #2. It’s hard to see how anyone could sue for #1 — the BoA deal was the best thing that could have happened to ML, without which ML probably would have collapsed.

Of course, there’s another issue here: both Bank of America and Merrill Lynch were effectively insolvent throughout the plaintiffs’ class period. Both are completely dependent upon emergency government policies to stay operating, and the government has already stepped in to convert the messy merger into a complicated loan and guarantee program.

That is to say, anyone who bought shares of Bank of America in this time frame knew they were buying an effectively insolvent company, and the damages of the Merrill transaction may be, at most, to rearrange the form of Bank of America’s insolvency — possibly to its advantage.

(If you’re not familiar with Section 14(a) shareholder class actions, there’s a little background below the fold.)

Continue Reading Shareholder Suits Launched in the Merrill Lynch / Bank of America Fiasco – Who Fibbed, Thain or Lewis?