A Merrill Lynch lawsuit against Bank of America over the buyout of the investment bank’s assets will finally reach trial later this year. Bank of America has agreed to pay out an enormous amount of money to settle this shareholder lawsuit, which has dragged on for more than three years. If the case is successful, it will be a landmark settlement for investors who have been ripped off by Wall Street banks and other financial institutions. It also represents a major victory for the Obama administration, which has been trying to hold Wall Street accountable for their actions.
Merrill Lynch is a large financial company that provides its clients with a range of commercial lending services. Its biggest customers are financial institutions, including large corporations, banks, mortgage lenders, and credit unions. During the late nineties, the company became a victim of fraudulent and negligent practices by some of its most trusted financial partners.
In July 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Merrill Lynch and several of its financial partners. The complaint alleged that these financial institutions and individuals had made false claims to investors in order to raise capital. The plaintiffs claimed that these claims were not supported by enough evidence. They also claimed that the companies failed to provide proof that the funds raised would be repaid.
As part of their defense against the SEC complaint, Merrill Lynch hired a team of financial experts. These experts, among others, included Larry Robbins, a former top financial regulator for the Federal Reserve. Another expert, David Golovin, used to work for the SEC as a senior staff attorney.
In late 2020, Merrill Lynch settled with the SEC. According to the terms of the settlement, the company has agreed to pay an incredible $2.4 billion in fines, including a fine of almost $1 billion and a penalty of nearly two hundred and sixty million dollars, and it has agreed to accept a fifty percent loss in its share price.
In addition to settling with the SEC, Merrill Lynch also has been battling for financial accountability at the courts. The company sued two of its financial investors, namely Goldman Sachs and Citigroup, over their handling of the funding of its own purchase of the investment bank. Both firms have so far refused to acknowledge their involvement in the transaction.
The case against the two banks is not likely to get resolved anytime soon. Merrill Lynch is seeking court approval to take the case to trial, but the two banks have denied the motion. In March 2020, a Federal District Court judge in New York declined to dismiss the case. The judge ruled that the complaint was not strong enough to support a claim for damages.
In a statement to the press, Robert Kaplan, the former head of the SEC, said, “The decision demonstrates the importance of protecting investors from corporate wrongdoing.” “Regulators must have the resources to address financial conflicts of interest between business partners. When they don’t, and business relationships become too complex, we lose the ability to effectively enforce our rules and regulations.”
The lawsuit against the two investment banks and Goldman Sachs also resulted in a major setback for the Merrill Lynch lawsuit. On April 6, the United States Court of Appeals for the Second Circuit reversed a lower court ruling that had denied the SEC’s request to dismiss the case. The court found that the SEC’s failure to obtain sufficient evidence to support its complaint deprived it of “sufficiently justifying reason” to bring the suit. The Second Circuit affirmed a ruling by the district court, which had found that the complaint was sufficiently supported by the facts.
Because the case was unsuccessful at the district court level, the SEC has no choice but to proceed with the case against the two firms. The SEC also has no choice but to sue the banks directly in federal court if it wants to obtain compensation for the damages that it suffered as a result of the case. The SEC can still seek to recover its losses through a civil case brought under section 13(b) of the Federal securities laws, which outlines the statute of limitations for filing a securities fraud lawsuit.
The SEC lawsuit against the two investment firms and Goldman Sachs does have some merit. The SEC may have to sue both companies individually, or it may choose to bring the case against them as a group under the rubric of “collateral relief.”
If the SEC wins its case, it will be able to recover much of the money it lost when it filed the complaint against the investment banks and Goldman Sachs. However, if it loses, the case will not only cost the SEC money but may also cause significant damage to the firm’s image. For this reason, the SEC is seeking a record settlement of the amount that it claims to be owed. on the Merrill Lynch lawsuit.