Bank of America defends Merrill bonuses

Bank of America Corp mounted an aggressive defense of Merrill Lynch & Co's decision to award some $3.6 billion of bonuses last year, as it tries to convince a federal judge to approve a settlement with the US Securities and Exchange Commission over its disclosures.

In a Monday filing with Manhattan federal court, the largest US bank said it was "widely understood" from Merrill's public disclosures and media reports that Merrill would award billions of dollars of year-end bonuses, despite a full-year loss that would reach $27.6 billion. Bank of America also said it made "no false or misleading statement or omission" in its proxy statement distributed to shareholders who voted on the bank's acquisition of Merrill, which closed on Jan 1.

"The intention of Merrill Lynch & Co Inc to pay incentive compensation for 2008 was disclosed and was part of the 'total mix' of information available to shareholders," the bank said. Bank of America had agreed on Aug 3 to pay $33 million to resolve an SEC civil lawsuit saying the Charlotte, North Carolina-based bank misled shareholders by not disclosing it had authorized up to $5.8 billion of bonuses at Merrill.

US District Judge Jed Rakoff, however, rejected the settlement, demanding many more details about who knew what and when about the bonuses, including the decision not to reveal the payouts before the merger closed. The bonuses have been the focus of Congressional hearings and a probe by New York Attorney General Andrew Cuomo.

At a hearing on Aug. 10, Rakoff said the $33 million settlement seemed to be "lacking in transparency" and "strangely askew," and might not prove "remotely reasonable" if the SEC were right that the bank lied about the bonuses. Rakoff said he could not reconcile the SEC's position that Bank of America "effectively lied" to shareholders with its decision not to force the bank to admit wrongdoing.

Noting that the government pumped $45 billion into Bank of America from the federal bank bailout plan, Rakoff said that "one might infer that public money was used, in effect, to pay the bonuses." The SEC is expected on Monday to file its own papers regarding the settlement. It is unclear whether Rakoff will approve the settlement or seek to modify it.

Bank of America shares were up 4 cents at $17.50 in afternoon trading on the New York Stock Exchange. The case is SEC v Bank of America Corp, US District Court, Southern District of New York (Manhattan), No 09-6829.
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