Bank of America Loses Bid to Dismiss Fraud Claims

Bank of America and two former executives lost a bid on Friday to dismiss securities fraud claims alleging they misled investors about the bank’s 2008 acquisition of Merrill Lynch & Co.

U.S. District Court Judge P. Kevin Castel ruled that plaintiffs could continue to pursue claims against the bank, former chief executive Kenneth Lewis and former chief financial officer Joe Price for failing to disclose Merrill’s deteriorating financial condition in the fourth quarter of 2008.

But Judge Castel dismissed claims that the defendants had failed to disclose the federal government’s financial support to BofA for facilitating the Merrill deal. He also dismissed claims on behalf of holders of various preferred shares, debt and call options for lack of standing.

A spokesman for Bank of America said it did not have an immediate comment.

BofA announced plans to buy Merrill for $50 billion in September 2008 at the height of the financial crisis. The controversial deal would be the last in a string of acquisitions for BofA under Lewis.

While championed as the combination of one of Wall Street’s oldest names with the largest U.S. consumer bank, the deal met with intense investor backlash.

In early 2009, Merrill posted a $15 billion fourth-quarter 2008 loss, the largest in the company’s history, as BofA announced a second U.S. government bailout to help absorb the investment bank’s higher-than-expected losses.

Federal and state authorities have since probed the deal, alleging the bank failed to disclose key facts about Merrill’s financial health before a shareholder vote on the deal.

The case is: In Re: Bank of America Corp. securities, U.S. District Court for the Southern District of New York, No. 1:09-md-02058.

(Reporting by Andrew Longstreth and Joe Rauch; Editing by Tim Dobbyn)