NEW YORK - The Securities and Exchange Commission said Monday that it plans file a new lawsuit alleging Bank of America Corp. failed to update its proxy to disclose mounting fourth-quarter losses at Merrill Lynch & Co. before shareholders voted to approve the merger in 2008.
In a statement late Monday, the regulator said it plans to pursue a separate complaint against the Charlotte, N.C., bank after a federal judge rejected its bid Monday to add the new allegations to an existing lawsuit over the bank's disclosures prior to the merger closing in January 2009.
"We are pleased that the court has permitted us to pursue these charges in a separate complaint," said John Nester, an SEC spokesman. "As a result, we intend to file promptly our allegations that Bank of America failed to disclose the Merrill Lynch losses."
The SEC is expected to allege that Bank of America failed to update its proxy statement prior to a Dec. 5, 2008, shareholder vote on the merger despite being aware that Merrill Lynch had suffered a $4.5 billion loss in October and was estimated to have suffered another multi-billion loss in November.
"These losses alone constituted more than one-third of the merger value as of December 5, and approximately 60% of Merrill's entire losses in the proceeding three quarters of the year," the SEC said in its motion to amend the original case. The motion, dated Dec. 31, 2009, was unsealed Monday.
The investment bank ultimately reported losses of $27.6 billion in 2008.
At a hearing Monday, District Judge Jed S. Rakoff in Manhattan denied the SEC's bid to add the new allegations regarding its disclosures of Merrill's losses to its existing case against the bank.
The judge expressed concern Monday there was a "danger of juror confusion" if he allowed the new allegations to be added to the existing complaint, which he said was "simple, straight-forward, clear."
However, he allowed the SEC to file a separate lawsuit on the new claims. The judge said he would expect the new case would be assigned to him as a related matter and he would set a summer trial date if the SEC decides to bring a separate complaint.
"We're pleased with the court's decision," said Robert Stickler, a Bank of America spokesman. "If the SEC tries to pursue the matter, we will vigorously defend ourselves because their assertions are totally without merit."
The SEC has already sued the bank over its disclosures regarding billions of dollars in bonuses paid to Merrill Lynch employees shortly before the $50 billion merger closed.
The case has been set for trial in March after Rakoff, the district judge, rejected a $33 million settlement in the case last September.
The SEC has alleged that Bank of America told investors in proxy documents for the acquisition that Merrill Lynch agreed it wouldn't pay bonuses or other compensation to executives before the takeover deal was closed without Bank of America's consent.
However, the SEC has said that the bank had already "contractually authorized" Merrill Lynch at the time to pay up to $5.8 billion in bonuses. Bank of America has denied wrongdoing.
Merrill Lynch ultimately paid $3.6 billion in bonuses shortly before the merger closed.
Separately, the SEC said Monday that it doesn't intend to file civil charges against Bank of America executives or directors over the disclosures.
In a statement, Bank of America said it is "pleased that the SEC, after investigating the matter thoroughly, has found no basis to charge any individuals at Bank of America or to assert a charge of fraud."