Bank of America 2009 Annual Report Download - page 182

of control and gross mismanagement in connection with the supervision
and management of the operations, business and disclosure controls of
the Corporation. The Corporation is named as a nominal defendant only
and no monetary relief is sought against it. The complaint seeks, among
other things, an unspecified amount of monetary damages, equitable
remedies and other relief.
Regulatory Matters
The Corporation and Merrill Lynch have also received and are responding
to inquiries from a variety of regulators and governmental authorities relat-
ing to among other things: (i) the payment by Merrill Lynch of bonuses for
2008 and disclosures related thereto; (ii) disclosures relating to Merrill
Lynch’s losses in the fourth quarter of 2008; (iii) disclosures relating to
the Corporation’s consideration of whether there had been a material
adverse change relating to Merrill Lynch and discussions with U.S.
government officials in late December 2008; and (iv) the Acquisition and
related proxy statement.
On August 3, 2009, the SEC filed a complaint against the Corpo-
ration, entitled SEC v. Bank of America, in the U.S. District Court for the
Southern District of New York, alleging that the Corporation’s proxy
statement filed on November 3, 2008 failed to disclose the discretionary
incentive compensation that Merrill Lynch could award to its employees
prior to completion of the Acquisition. On September 14, 2009, the Dis-
trict Court declined to approve a proposed consent judgment agreed to by
the Corporation and the SEC. On October 9, 2009, the Corporation’s
Board of Directors approved a limited waiver of the Corporation’s attorney-
client and attorney work product privileges as to certain subject matters
under investigation by the U.S. Congress, and federal and state regulatory
authorities.
On January 12, 2010, the SEC filed a second complaint against the
Corporation, entitled SEC v. Bank of America Corp., in the U.S. District
Court for the Southern District of New York alleging that the Corporation
violated the federal proxy rules for failing to disclose information concern-
ing Merrill Lynch’s known and estimated losses prior to the shareholder
vote on December 5, 2008, to approve the Acquisition. The SEC alleges
that the Corporation was required to describe in its proxy and registration
statement any material changes in Merrill Lynch’s affairs that were not
already reflected in Merrill Lynch’s quarterly reports or certain other public
filings, and to update shareholders on any “fundamental change” arising
after the effective date of the registration statement. The SEC alleges
that the Corporation’s failure to provide such an update violated Sec-
tion 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 there-
under. The SEC is seeking an injunction against the Corporation to
prohibit any future violations of Section 14(a) and Rule 14a-9, as well as
an unspecified civil monetary penalty.
On February 1, 2010, the Corporation entered into a proposed settle-
ment with the SEC to resolve all cases filed by the SEC relating to the
Acquisition. Also, on February 4, 2010, the Corporation entered into an
agreement with the Office of the Attorney General for the State of North
Carolina (NC AG) to resolve all matters that are the subject of an inves-
tigation by that Office relating to the Acquisition. Under the terms of the
proposed settlements, the Corporation agreed, without admitting or deny-
ing any wrongdoing, to pay $150 million as a civil penalty to be dis-
tributed to former Bank of America shareholders as part of the SEC’s Fair
Fund program and a payment of $1 million to be made to the NC AG for
its consumer protection purposes. The payment to the NC AG is not a
penalty or a fine. As part of the settlements, the Corporation also agreed
to implement a number of additional undertakings for a period of three
years, including: engaging an independent auditor to perform an assess-
ment and provide an attestation report on the effectiveness of the Corpo-
ration’s disclosure controls and procedures; furnishing management
certifications signed by the CEO and CFO with respect to proxy state-
ments; retaining disclosure counsel to the Audit Committee of the Corpo-
ration’s Board; adopting independence requirements beyond those
already applicable for all members of the Compensation and Benefits
Committee of the Board; continuing to retain an independent compensa-
tion consultant to the Compensation and Benefits Committee; implement-
ing and disclosing written incentive compensation principles on the
Corporation’s website and providing the Corporation’s shareholders with
an advisory vote concerning any proposed changes to such principles;
and providing the Corporation’s shareholders with an annual “say on pay”
advisory vote regarding the compensation of senior executives. These
proposed undertakings may be amended or modified in light of any new
regulation or requirement that comes into effect during the three-year
period and is applicable to the Corporation with respect to the same
subject matter. On February 22, 2010, the District Court approved the
settlement subject to the Corporation and the SEC making certain mod-
ifications to the settlement to require agreement between the SEC and
the Corporation on the selection of the independent auditor and dis-
closure counsel and to clarify certain issues regarding the distribution of
the civil penalty. The parties made the modifications and on February 24,
2010, the District Court entered the Consent Judgment encompassing
the settlement terms.
On February 4, 2010, the Office of the New York State Attorney Gen-
eral (NY AG) filed a civil complaint in the Supreme Court of New York
State, entitled People of the State of New York v. Bank of America, et al.
The complaint names as defendants the Corporation and the Corpo-
ration’s former chief executive and chief financial officers, Kenneth D.
Lewis, and Joseph L. Price, and alleges violations of Sections 352,
352-c(1)(a), 352-c(1)(c), and 353 of the New York General Business Law,
commonly known as the Martin Act, and Section 63(12) of the New York
Executive Law. The complaint is based on, among other things, alleged
false statements and omissions and fraudulent practices related to:
(i) the disclosure of Merrill Lynch’s financial condition and its interim and
projected losses during the fourth quarter of 2008; (ii) the Corporation’s
contacts with federal government officials regarding the Corporation’s
consideration of invoking the material adverse effect clause in the merger
agreement and the possibility of obtaining additional government assis-
tance; (iii) the disclosure of the payment and timing of year-end incentive
compensation to Merrill Lynch employees; and (iv) public statements
regarding the due diligence conducted in connection with the Acquisition
and positive statements regarding the Acquisition. The complaint seeks
an unspecified amount in disgorgement, penalties, restitution, and dam-
ages and other equitable relief.
Merrill Lynch Subprime-related Matters
Louisiana Sheriffs’ Pension & Relief Fund v. Conway, et al.
On October 3, 2008, a putative class action was filed against Merrill
Lynch, Merrill Lynch Capital Trust I, Merrill Lynch Capital Trust II, Merrill
Lynch Capital Trust III, MLPF&S (collectively the Merrill Lynch entities),
and certain present and former Merrill Lynch officers and directors, and
underwriters, including BAS, in New York Supreme Court, New York Coun-
ty. The complaint seeks relief on behalf of all persons who purchased or
otherwise acquired debt securities issued by the Merrill Lynch entities
pursuant to a shelf registration statement dated March 31, 2006. The
complaint alleged that prospectuses misstated the financial condition of
the Merrill Lynch entities and failed to disclose their exposure to losses
from investments tied to subprime and other mortgages, as well as their
liability arising from its participation in the ARS market. On October 22,
2008, the action was removed to the U.S. District Court for the Southern
District of New York and on November 5, 2008 it was accepted as a
180 Bank of America 2009