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In Re Merrill Lynch & Co., Inc. Securities, Derivative and ERISA

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In Re Merrill Lynch & Co., Inc. Securities, Derivative and ERISA UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE MERRILL LYNCH & CO., INC. Master File No.: SECURITIES, DERIVATIVE AND ERISA 07cv9633 (JSR) LITIGATION ; This Document Relates To Derivative Action, 07ev9696 (JSR) (DFE) _ VERIFIED THI • I AMENDED SHAREHOLDER DERIVATIVE AND CLASS ACTION COMPLAINT INTRODUCTION 1. This is a shareholder's class and double-derivative action complaint brought by Miriam Loveman, a former long-term shareholder of Merrill Lynch & Co., Inc. ("Merrill" or "Merrill Lynch") who became a shareholder of Bank of America Corporation ("Bank of America" or "BofA") pursuant to the merger of BofA with Merrill (the "Merger"), on January 1, 2009, pursuant to the Agreement and Plan of Merger, dated September 15, 2009, as amended on October 21, 2008 (the "Merger Agreement"). Pursuant to the Merger Agreement, each outstanding share of Merrill common stock was converted into the right to receive 0.8595 shares of BofA common stock (the "Merger Consideration"), Merrill became a wholly-owned subsidiary of BofA, and the BofA Board of Directors was expanded to include three former directors from Merrill's Board of Directors. 2, This complaint is being filed pursuant to the Court's February 17, 2009 Opinion and Order, 07-ev-9633, Dkt. No. 200 (the "Opinion and Order"). The Court's Opinion and Order was later amended, on March 3, 2009, to reflect that the Opinion and Order only addressed Counts I-VIII in the Plaintiffs Verified Second Amended Shareholder and Class Action Complaint, the shareholder derivative claims (the "Derivative Claims"). Amended Order, Dkt. No. 208. The Derivative Claims on behalf of Merrill Lynch were dismissed — without prejudice — based on the Court's holding that Plaintiff lost standing to assert claims on behalf of Merrill Lynch once it was acquired by Bank of America. Id. The Court's Opinion and Order on February 17, 2009, noted "that its dismissal is without prejudice to plaintiffs' filing with this Court if and when they have standing, a renewed action, recast as a derivative action against Bank of America, or as a so-called `double derivative' action, or otherwise, but based on the same underlying allegations as the actions here dismissed." Opinion and Order, Dkt. No. 200 at 7. This complaint is being filed in accordance with the Court's Opinion and Order, and asserts in Counts I through XII below, double derivative claims against defendants named in those counts based on the claims of Merrill Lynch on behalf of its parent, BofA. 3. The derivative claims in this action are brought for the benefit of Nominal Defendants Merrill and BofA against the members of Merrill's Board of Directors (the "Merrill Board"), BofA's Board of Directors, and certain current an former members of Merrill's Board of Directors, BoA's Board of Directors, and Merrill executive officers named as defendants in this action, seeking to recover derivatively on behalf of Merrill and BofA for their violations of the law, including breaches of fiduciary duties, corporate mismanagement, waste of corporate assets and unjust enrichment, relating to claims that arose prior to the Merger on behalf of Merrill that have financially harmed Merrill and BofA. The class action claims are brought on behalf of a proposed class of former shareholders of Merrill — who became shareholders of BofA — and have been harmed by, among other things, defendants' actions in connection with the Merger. 2 4. Prior to announcement of the Merger, as a result of improper financial reporting and gross mismanagement, Merrill Lynch's credibility with investors, clients, federal regulators and the stock market was virtually destroyed. In an effort to eliminate their own personal liability for the wrongdoing, on September 14, 2009, the defendant members of Merrill's Board and its senior executives negotiated the Merger with senior management of BofA, and that transaction was approved, within a period of less than 48 hours, without any substantive due diligence, by the BofA Board. 5. In connection with the Merger Agreement, BoA's Board agreed to the Merger. To ensure that the Merrill Defendants (as defined below) were completely insulated from any liability concerning their prior breaches of their fiduciary duties alleged herein, the Merger Agreement, approved by the BofA Board, contained an iron-clad indemnification clause which states, in relevant part, that: [BofA] shall ..., to the fullest extent permitted by applicable law, indemnify, defend and hold harmless, and provide advancement of expenses to, each [Merrill Lynch officer and director] against all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in connection with any Claim based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of [Merrill Lynch] or any of its Subsidiaries, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the Effective Time, whether asserted or claimed prior to, or at or after, the Effective Time (including matters, acts or omissions occurring in connection with the approval of this Agreement and the consummation of the transactions contemplated hereby) .... 1 6. In addition to approving the protections from liability described above, the BofA Board, again, without any due diligence, blindly approved $3.62 billion in bonus compensation for 2008 (a year in which Merrill suffered unprecedented losses in the tend of billions of dollars) to Merrill Lynch employees. 1 Merger Agreement at ¶ 6.6 (emphases added) (attached to Joint Proxy, defined infra, as Appendix A). 3 7. Further, in anticipation of the Merger, BofA permitted Merrill to settle claims against its officers and directors in a consolidated securities fraud class action and an ERISA class action in an amount in excess of $500 million in cash, thereby further insulating the Merrill officers and directors from personal liability at the expense of Merrill's shareholders (and ultimately BofA's shareholders) with no provision for the individual defendants in those suits to share in the costs of the settlements or make any personal payments to obtain releases of their personal liability to Merrill Lynch's investors. 8. On November 3, 2008, Merrill Lynch and BofA filed joint proxy statements with the SEC on Schedule 14A (the "Joint Proxy"), dated October 31, 2008, 2 seeking shareholder approval for the Merger from both companies' stockholders. 3 Relying on Defendants' disclosures in the Joint Proxy and Supplemental Disclosure, on December 5, 2008, shareholders of Merrill Lynch and BofA voted in favor of approving the Merger, which was consummated on January 1, 2009. 9. In fact, the Merrill Individual Defendants' breaches of fiduciary duty were so thorough and damaging to Merrill that, beginning in December 2008, Merrill Lynch's financial losses were quickly spiraling out of control. By mid-November, prior to the shareholder votes on December 5, 2008, Bank of America had watched Merrill Lynch's pre-tax quarterly loss approach $9 billion and — by November's-end — Merrill Lynch's pre-tax loss had swelled to 2 Merrill Lynch & Co., Inc., Definitive Proxy Statement (Schedule 14A) (Nov. 3, 2008); Bank of Am. Corp., Definitive Proxy Statement (Schedule 14A) (Nov. 3, 2008). 3 Pursuant to a November 21, 2008, memorandum of understanding with plaintiffs in the Court of Chancery and in the Southern District of New York actions, Merrill Lynch and BofA agreed to supplement the Joint Proxy and make certain additional disclosures related to the Merger (the "Supplemental Disclosure"). Merrill Lynch & Co., Inc., 8-K (Form 8-K) (Nov. 21, 2008); Bank of Am. Corp., 8-K (Form 8-K) (Nov. 21, 2008). 4 $13.3 billion, or $9.3 billion after taxes. 4 By December 9, 2008, three days after the shareholder votes, Bank of America Chief Financial Officer Joe Price had informed the BofA Board that Merrill's pre-tax quarterly loss had reached $19 billion, or $14 billion net loss after taxes, and Bank of America Chief Executive Officer ("CEO") Kenneth Lewis informed the BofA Board that BofA would seek to abandon the Merger. 5 Finally, by mid-December, Merrill Lynch's pre- tax quarterly loss had ballooned to $21 billion, or $15 billion net of taxes. 6 10. Faced with these unexpected "monstrous" Merrill lynch losses that BofA's Board failed to discover before the Merger Agreement was approved due to their failure to require or even inquire that any meaningful due diligence of Merrill's current and near term financial condition prior to approving the Merger, on December 17, 2008, BofA CEO, Kenneth Lewis, flew to Washington, D.C., to meet with then-Secretary of Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke to inform them that BofA would seek to cancel the Merger, pursuant to a Material Adverse Change ("MAC") clause in the Merger Agreement. 7 The December 17, 2008 meeting concluded with Messrs. Bernanke and Paulson urging Kenneth Lewis to "finish the deal and not invoke a material-adverse change clause, saying it was in his interest to finish the deal." 8 4 Dan Fitzpatrick, Susanne Craig and Deborah Solomon, In Merrill Deal, U.S. Played Hardball, Wall St. J., Feb. 5, 2009, at A1 5 Id. 6 Id. 7 See id.; see also Dan Fitzpatrick, Deborah Solomon and Susanne Craig, Crisis on Wall Street — Bank Stress: BofA's Latest Hit — Treasury to Inject $20 Billion More; Stock at 1991 Level, Wall St. J., Jan. 16, 2009, at C 1. 8 Dan Fitzpatrick, Deborah Solomon and Susanne Craig, Crisis on Wall Street — Bank Stress: BofA's Latest Hit — Treasury to Inject $20 Billion More; Stock at 1991 Level, Wall St. J., Jan. 16, 2009, at C1.
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