The Securities and Exchange Commission is seeking permission to add new charges against Bank of America Corp. for failing to disclose Merrill Lynch's "extraordinary losses" in time for the shareholder vote on its takeover.
The SEC asked U.S. District Judge Jed Rakoff on Dec. 31 to include the new allegations in the agency's civil lawsuit against B of A.
Last August, the SEC sued B of A for not disclosing to shareholders voting on the takeover that it intended to pay more than $3 billion in bonuses to Merrill Lynch employees.
The SEC and the Charlotte bank reached a settlement, but Judge Rakoff rejected the agreement. The case is scheduled for trial on March 1.
According to the SEC's letter, by the time shareholders voted on the Merrill deal Dec. 5, 2008, B of A was aware that Merrill had suffered $4.5 billion in net losses during October and had estimated an additional multibillion-dollar loss for November.
The SEC alleges that those losses constituted more than one-third of the deal's value and approximately 60% of Merrill's entire losses in the preceding three quarters, representing a fundamental change to the deal.
The SEC said failing to make new disclosures about the losses "violated BOA's express undertaking to update shareholders of fundamental changes," making the proxy disclosures "false and misleading."
In a letter dated Jan. 7 responding to the SEC's request, B of A called the SEC's new allegations a "legally novel charge," arguing that Judge Rakoff should reject the request to expand its allegations.
B of A said in a statement Monday: "We are disappointed that more than two months after the court-imposed deadline to amend its complaint and in the absence of any new information, the SEC now at the 11th hour is nevertheless trying to add new charges. With a trial set to begin in approximately six weeks, this would materially hinder our ability to mount a defense."
Judge Rakoff was scheduled to hold a hearing on the SEC's request late Monday.