Court Preliminarily Approves $150 Million Subprime-Related Merrill Lynch Bond Action Settlement

Court Preliminarily Approves $150 Million Subprime-Related Merrill Lynch Bond Action Settlement - 8/27/2009

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News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

SETTLEMENT NEWS:

Court Preliminarily Approves $150 Million Subprime-Related Merrill Lynch Bond Action Settlement
Kevin LaCroix

The D & O Diary. August 27, 2009
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EXCERPT: […] the lead plaintiffs asserted claims on behalf of the class under Sections 11, 12 and 15 of the Securities Act. The defendants included not only Merrill itself and certain of its directors and officers, but also the offering underwriters as well. The complaint alleged that the offering documents issued in connection with the specified securities offerings failed to "accurately disclose the existence and the value of tens of billions of dollar of complex derivative securities linked to subprime mortgages" that Merrill was carrying on its balance sheet. The complaint further alleges that these exposures "nearly wiped Merrill out by September 2008" and also "nearly toppled Merrill’s white knight acquirer," the Bank of America, and only a massive federal bailout rescued the banks’ merger. There are several interesting things about this settlement, beyond just its size alone. The first is that the defendants entered the settlement while the motions to dismiss the amended complaint were still pending. While there may be any number of reasons for the timing of this development, it does (together with the timing of the prior Securities Action settlement) suggest that following its acquisition of Merrill, Bank of America moved quickly to clear the decks of Merrill litigation that predated the merger, even if substantial sums proved to be required to accomplish that goal. The substantial sums of cash raises another interesting question, which is the omnipresent question for all bailed out financial institutions – is this being financed with federal bailout money? Or, to put it another way, are taxpayer funds going to pay off the plaintiffs and their lawyers in this case? […] The bare face of Judge Rakoff’s order preliminarily approving the settlement does not broach any of these subjects.

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