Bank of America 'deceived shareholders about Merrill Lynch losses'

Bank of America has been accused of failing to inform its shareholders about billions of dollars worth of Merrill Lynch losses before a vote was taken about whether the company should take over the financial consultancy.

The allegation was made in a lawsuit filed against Bank of America by the US Securities and Exchange Commission (SEC), which claims shareholders would not have given their approval to the deal had they known the true nature of Merrill Lynch's financial position.

"Bank of America kept shareholders in the dark as they were called upon to vote on the proposed merger at the end of a quarter of nearly unprecedented volatility and uncertainty," the SEC said of the 2008 deal.

Last year, the regulatory body had proposed that Bank of America pay $33 million to settle the case, with no requirement to admit liability for any wrongdoing.

But that idea was knocked back in September by Judge Jed Rakoff, who said that the SEC had a responsibility to pursue the case.

Judge Rakoff stated that if the SEC allowed the settlement to take place it "would effectively close the case without the SEC adequately accounting for why, in contravention of its own policy ... it did not pursue charges against either bank management or the lawyers who allegedly were responsible for the false and misleading proxy statements."

His ruling has led to this week's filing against Bank of America, which has denied the charges against it.

In a separate SEC ruling, it is also alleged that the bank failed to disclose information about $5.8 billion paid in bonuses to Merrill Lynch staff at the tail-end of 2008.

That case is set for trial on March 1st 2010.

Bank of America paid $29 dollars a share to buy Merrill Lynch in September 2008, the same month that the collapse of Lehman Brothers heralded the start of the global financial crisis.

By Asim Shah