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January 12, 2010 11:38 AM

Rakoff Shoots Down the SEC in BofA Case

Posted by Zach Lowe

A quick addendum to our post yesterday about the SEC's move to add a new charge to its civil suit against Bank of America: Judge Jed Rakoff said no, and told the SEC they could sue BofA for failing to notify shareholders about Merrill Lynch's disastrous fourth-quarter losses only in a separate complaint, according to our colleague Sue Reisinger at Corporate Counsel

Rakoff, presiding over the suit concerning BofA's ultracontroversial acquisition of Merrill Lynch, decided that jurors would be confused by a multipronged suit and said that adding a new charge so soon before a scheduled March 1 trial would require extra prep time for BofA. The ruling represents a victory for the bank's legal team, which consists now of Paul, Weiss, Rifkind, Wharton & Garrison, Cleary Gottlieb Steen & Hamilton, and Wachtell, Lipton, Rosen & Katz. As you surely remember, Wachtell served as BofA's deal counsel in the Merrill acquisition, and it is Wachtell's advice on disclosure issues that has been the focus on inquiries from Rakoff, the SEC, New York attorney general Andrew Cuomo, and other officials. The bank waived attorney-client privilege in the SEC proceeding, but there remains some question about whether that waiver, which the bank intended to be limited, may apply in other litigation venues.

Prior to New Year's Eve, the SEC had focused its civil case on BofA's decision not to inform shareholders before their vote on the deal that Merrill had planned for up to $5.8 billion in bonus payments to executives. (The bank disclosed the payments only in confidential documents it referred to vaguely in public filings, a strategy the bank claims is common and legal.) The SEC moved on Dec. 31 to add a similar charge concerning Merrill's monstrous fourth-quarter losses, but Rakoff denied the move Monday night, Reisinger reports.

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