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Steven Waldman. V. Bank of America Corporation, Et Al. Waldman

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Steven Waldman. V. Bank of America Corporation, Et Al. Waldman 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK STEVEN WALDMAN, Plaintiff, V. KENNETH D. LEWIS, CHARLES K. GIFFORD, WILLIAM BARNETT, III, FRANK P. BRAMBLE, SR., JOHN T. COLLINS, GARY L. COUNTRYMAN, No. TOMMY R. FRANKS, MONICA C. LOZANO, WALTER E. MASSEY, THOMAS J. MAY, PATRICIA E. MITCHELL, O. TEMPLE SLOAN, VERIFIED SHAREHOLDER MEREDITH R. SPANGLER, ROBERT L. TILLMAN, DERIVATIVE COMPLAINT FOR JACKIE M. WARD, JOE L. PRICE, AMY WOODS VIOLATIONS OF SECTION BRINKLEY, BRIAN T. MOYNIHAN, R. EUGENE TAYLOR, NEIL A. COTTY, KEITH T. BANKS, 14(A) OF THE SECURITIES JOHN A. THAIN, CAROL T. CHRIST, ARMANDO EXCHANGE ACT OF 1934, M. CODINA, JUDITH MAYHEW JONAS, VIRGIS CONTRIBUTION, UNJUST W. COLBERT,, AULANA L. PETERS, CHARLES O. ENRICHMENT, BREACH OF ROSSOTTI, JOHN D. FINNEGAN, JOSEPH W. FIDICIARY DUTY AND PRUEHER, ANN N. REESE, NELSON CHAI, GARY CORPORATE WASTE A. CARLIN, DELOITTE & TOUCHE LLP, FOX- r111 rl.L III VIN l.V1.111\ i.iV \.l11\V1V 1l1 YY l1111-La\ (USA) LLC, and J.C. FLOWERS & CO. LLC, JURY TRIAL DEMANDED Defendants, and BANK OF AMERICA CORPORATION, Nominal Defendant. r- L VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT Plaintiff Steven Waldman ("Waldman"), a long-time shareholder of Bank of America Corp. ("BOA" or "the Company") alleges the claims herein derivatively on behalf of BOA, and for its benefit. The claims asserted below are alleged upon information, and belief, except for those claims which pertain to Plaintiff Waldman himself, which are alleged on personal knowledge. 1. NATURE OF THE CASE 1. BOA has suffered serious harm as a result of a number ofviolations of law committed by its own officers and directors, and by violations of law committed by officers and directors of Merrill Lynch & Co. ("Merrill"), a company BOA required by merger in early 2009 (the "Merger"). The Merger, which was accomplished through a materially misleading Proxy Statement seeking shareholder approval, has inflicted near-fatal harm on BOA, a nationwide banking colossus which was once one of the country's most solvent and respected institutions. Even before the Merger, BOA was hobbled by a number of wrongful acts which were committed (or permitted to be committed) by BOA' s ineffectual management team, and Board of Directors. Such acts amounted, at least, to a conscious disregard ofthe fiduciary duties entrusted to these fiduciaries . The wrongful conducted involved legal violations and absurd business risks no corporation of this nature should have been allowed to undertake. 2. The wrongful Merger has been the coup de grace for BOA, which has now been reduced to the status of a financial ward of the U.S. taxpayers. Because the BOA Board failed consciously to perform its duties, it permitted BOA CEO Kenneth D. Lewis to execute a Merger deal with Merrill, without adequate investigation into the billions of dollars of concealed toxic liabilities contained on Merrill's books. In a unduly rushed transaction, assisted by the actions Merrill fiduciaries named as defendants herein, BOA's directors signed off on an acquisition whose implications they did not and could not understand in the time allotted. They were not forced to r approve such a Merger in such a unduly hurried manner, yet they so anyway, supinely bowing to the wishes of CEO, who knew no more about Merrill's true financial condition that they did. 3. To compound these injuries, after the Merger was approved by means of a Proxy Statement which understated the true state of financial emergency at Merrill, the BOA Board was provided with information as to the Merrill's billions in overvalued assets (enough to sink BOA), but closed on the Merger anyway, in breach of their fiduciary duties , after CEO Lewis obtained vague promises from the US Treasury Department that a Merrill Merger would be followed by yet another infusion of taxpayer cash into BOA, which would materially weaken BOA, and its chances to survive financially as anything other than a government supplicant. Indeed, when Merrill's true financial state was belatedly revealed in January 2009, and an astonishing $15 billion loss was revealed, BOA was forced (due to this needless Merger) to seek further governmental aid. Its stock price at that juncture fell to a low of only $5.05 per shares, and has scarcely recovered II. ALLEGATIONS OVERVIEW A. The Practice of Selling Dubious Adjustable Rate Securities (ARS's) 4. The BOA Defendants - as well as their counterparts in approximately one dozen other brokerage houses, including Citigroup, UBS, and Morgan Stanley - participated in an industry- wide scheme in the ARS market whereby retail and institutional customers alike were induce to purchase tens of billions of dollars ' worth of highly illiquid and unmarketable securities. These improper practices will cost BOA alone billions dollars in fines, remediations, judgments, settlements, repurchases from customers, lost business, and other repercussions. 5. The ARS market was manipulated in various ways , including through the creation of untrue statements as to the nature of an ARS and its liquidity, the existence and operation of an aftermarket in the ARS, and undue influence placed upon salespeople are purportedly independent 2 r f research analysts who promoted ARS. The BOA directors, despite red flags that would have alerted them to the issues surrounding ARS marketing, failed to intervene in these practices, which were temporarily lucrative, but extremely harmful in the long run. As a result of these defendants' misconduct, BOA became a target of an administrative proceeding relating to ARS by the Securities and Exchange Commission ("SEC") in 2006 - and again in 2008, for the same misconduct. The company was investigated by the Massachusetts Securities Division and the New York Office of Attorney General, as well as a nine-state task force comprising Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, North Carolina, Texas and Washington, and led by the Financial Industry Regulatory Authority and the North American Securities Administrators Association. In addition, the company has been sued for violations of the federal securities laws arising out of the ARS scheme. (A partial list of the proceedings brought by various governmental agencies and private parties pertaining to ARS is set forth in Exhibit A hereto.) 6. To head off those proceedings, the BOA Defendants agreed to several onerous settlements, including settlements in August and September 2008 that required BOA to pay a fine of $50,000,000 and repurchase approximately $5 billion worth of ARS from customers. The ARS that BOA has acquired and will acquire from its customers will likely prove unmarketable at more than a fraction of face value, and will have to be written off with substantial losses. B. BOA's Ruinous Merrill Merger 7. Merrill had entered into similar ARS-related settlements with the SEC and state regulators, requiring it to pay a fine of $125,000,000 and repurchase approximately $12 billion of ARS. Shortly after entering into its ARS settlements, Merrill's liquidity problems, already serious, took an alarming turn for the worse, making clear that it could not continue as a going concern. Merrill's balance sheet was loaded down with billions worth of toxic securities, and Merrill was 3 affected by large-scale trading miscues, which were concealed, but which at the time of the Merger vote rendered Merger worthless, or close to worthless as a going concern. The Board of Directors of Merrill (sued here as the Merrill Defendants) were forced to sell the entire company to an outside party - which transaction these defendants accomplished on the weekend of September 13-14, 2008. Thus was Merrill acquired by BOA in a stock-for-stock Merger announced on the morning of September 15, 2008. The deal was negotiated in the space of a single afternoon, Saturday, September 13, 2008, between defendant Kenneth A. Lewis, BOA's Chairman and CEO, and defendant John A. Thain, the Chairman and CEO of Merrill. The deal was valued at the time at approximately $50 billion, representing a 70 percent premium to the price of Merrill's common stock at the time. The Boards of Directors of both Merrill and BOA approved the merger in great haste in separate afternoon meetings held the next day. There was no need for BOA to engage in such haste, as BOA was not required to acquire Merrill, and could have refused any deal. Nonetheless, CEO Lewis' acquisition fever prevailed over common sense, as the supine BOA Board acquiesced in a company-killing deal with less due diligence than would accompanied the purchase of 7-11 franchise. The BOA consciously ignored the axiom , "the greater the risk, the greater the caution," and rushed forward blindly. This attitude continued, as described below, unto BOA was at risk of insolvency and total failure. 8. The process by which the BOA Director Defendants agreed to buy Merrill - and eventually close the deal on January 1, 2009 - was gravely flawed, from start to finish. First, the BOA Board conducted almost no due diligence of Merrill. According to the BOA Director Defendants' own statements to shareholders, the due diligence BOA made of Merrill began no earlier than the late afternoon of Saturday, September 13, 2008, and was essentially concluded by early the next morning. Such an investigation, occupying as it did no more than 12 to 15 hours of 4 r analysis, was, on its face, woefully incomplete and inadequate for a proposed $50 billion merger. The process was especially inadequate given Merrill's exposure to accelerating losses in the market for ARS, collateralized debt obligations, mortgage-backed securities, and other derivatives that made headlines throughout the nation's economy in the summer and fall of 2008. 9. Nowhere is this better illustrated than in the BOA Director Defendants' agreement to indemnify the officers and directors of Merrill (including the Merrill Defendants herein) for all liabilities arising before the Merger was to be consummated.
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