Bank of America sold shareholders the Merrill deal as its losses exploded - $2.43B

Bank of America agreed in September 2008, at the worst moment of the crisis, to buy Merrill Lynch, and took the deal to shareholders in December 2008 with proxy materials that kept quiet about how fast Merrill was deteriorating. BofA's own annual report later catalogued what was at issue: Merrill's fourth-quarter losses, the diligence behind the deal, the agreement letting Merrill pay up to $5.8 billion in 2008 bonuses, and private December 2008 discussions with government officials about walking away and about getting federal help to close.

The numbers were startling. On January 16, 2009 - two weeks after the deal closed on January 1 - BofA reported that Merrill had lost $15.31 billion in the fourth quarter alone, and announced a $20 billion emergency Treasury infusion on top of an earlier bailout, with the government insuring $118 billion of exposure. Shareholders who had voted without those facts sued from January 2009, and the cases were consolidated in the Southern District of New York.

The litigation became a landmark in how not to settle. In August 2009 Judge Jed Rakoff rejected a $33 million SEC settlement over the proxy as a breach of 'justice and morality,' then reluctantly approved a revised $150 million penalty in February 2010 - a record of its kind - calling it 'half-baked justice at best.' The private class action was certified in February 2012, settled that November for $2.43 billion, and won final court approval on April 5, 2013, together with court-supervised corporate governance reforms.

A $2.43B class settlement, a record $150M SEC penalty, and a $20B emergency federal infusion

Management treated the shareholder vote as a formality on a deal already signed, and kept the proxy free of facts - bonus authority and bailout talks - that might have flipped the vote.

The team told Treasury in December 2008 that Merrill's deterioration might justify pulling out, while telling investors the deal was sound; litigation discovery put the two stories side by side.

Closing before the losses went public did not cure the omission - it converted a valuation dispute into a completed misrepresentation with a measurable stock drop.

A record SEC penalty and a rejected first settlement followed because the SEC case rested on the same proxy documents any shareholder could read.

Treat a shareholder vote as a real disclosure event. What you tell regulators in private must reach the owners approving the deal - or you defend the same facts twice, as a deal and as a fraud claim.

Final approval came on April 5, 2013, with the $2.4 billion fully accrued by September 2012, and certain class members appealed to the Second Circuit. The settlement also imposed governance enhancements that BofA had to maintain into 2015. A parallel Martin Act suit by the New York Attorney General over the same acquisition was part of the consolidated litigation, and CEO Brian Moynihan cast the payment as the price of putting 'long-standing issues' behind the bank.