Legal News

Bank of America Loses Thain, Gains a Shareholder Suit

By Dan Slater

Merrill Lynch Chairman and CEO John Thain, left, and Bank of America Chairman and CEO Ken Lewis, Sept. 15, 2008. (AP)

There appears to be some serious fallout over last week’s news that BofA returned to the Fed’s rescue trough amid the realization that the fourth quarter losses of Merrill Lynch, it’s latest acquisition, were larger than expected.

Fallout A: Former Merrill CEO John Thain resigned today from BofA. A source told The Journal that BofA had lost confidence in Thain, after the bank’s CEO, Ken Lewis, learned of mounting fourth-quarter losses at Merrill from the transition team handling the Bank of America-Merrill merger rather than from Thain himself. And when Lewis asked Thain what happened, Lewis did not get a “good explanation for what was happening and why” the source told The Journal.

Fallout B is of the legal variety: We just received a press release announcing that Susman Godfrey lawyers have filed a class action lawsuit in the Southern District of New York, claiming that BofA and Merrill Lynch and their respective officers and directors made false and misleading statements in the proxy materials for the December 5 vote regarding the Merrill deal. The complaint alleges that the true nature of Merrill’s financial condition was not revealed even though Merrill and BofA knew or should have known of the large losses at Merrill Lynch. Here’s the complaint.

From Paragraph 48 of the 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.

A spokesperson for BofA did not immediately return a call seeking comment.

Full post as published by Law Blog - WSJ.com on January 22, 2009 (boomark / email).