US/EUROPE - Pension funds from Europe and the US have been given the go-ahead to proceed with a securities fraud lawsuit against Bank of America and Merrill Lynch.
The lawsuit alleges that Bank of America, during merger negotiations, agreed to allow Merrill Lynch to pay up to $5.8bn in accelerated year-end bonuses to its executives and employees, but failed to disclose that information to shareholders before they voted to approve the merger.
The lead plaintiff group includes the State Teachers Retirement System of Ohio; the Ohio Public Employees Retirement System; the Teacher Retirement System of Texas; Stichting Pensioenfonds Zorg en Welzijn, represented by PGGM Vermogensbeheer B.V.; and Fjärde AP-Fonden 4.
They also claim that in the two months before shareholders voted on the merger, Merrill Lynch suffered billions of dollars in losses, which senior executives at both Merrill Lynch and Bank of America were aware of but did not disclose to investors prior to the shareholder vote on the merger.
The New York Federal District Court has this week denied the defendants' motions to dismiss the case, clearing the way for Ohio's pension funds and allied pension systems to move forward with their claims that the defendants committed securities fraud and issued false proxy statements. If successful, the lawsuit could potentially recover billions of dollars for shareholders.
"The court's ruling is a major win not only for Ohio teachers, public employees and all Bank of America shareholders, but it also is a win for shareholders of every company and for our financial system," Ohio Attorney General Richard Cordray said.
"The court ruled that companies cannot pick and choose what they will tell their shareholders. Companies will not be allowed to hide exorbitant bonuses and huge losses from their shareholders. We will continue to move forward aggressively with this action to hold these companies and executives accountable."
Dutch asset manager APG has filed a separate suit against (BofA) over related claims. (Global Pensions: 17 Mar 2010)
Ohio's pension funds have been involved in several similar suits this year. In July, American International Group (AIG) agreed to pay $725m to settle a class action suit brought by the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio and the Ohio Police and Fire Pension funds alleging bid-rigging, stock price manipulation and accounting fraud. (Global Pensions: 19 July 2010)
The same funds, together with the School Employees Retirement System of Ohio and the New York State Common Retirement Fund, are also seeking lead plaintiff status in a class action suit against BP. (Global Pensions: 21 July 2010)
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