Bank of America Shareholder Suit: Civil vs. Criminal Liability

July 26, 2012

Americans have heard plenty about financial fraud in recent years, due largely to federal enforcement of white collar crimes in the mortgage industry and related sectors. Investigations of financial wrongdoing can lead to criminal prosecutions as well as lawsuits initiated by shareholders and other interested parties.

A major shareholder suit recently filed in New York against Bank of America touches on some legal issues common to fraud lawsuits and federal white collar prosecutions. The case involves allegations that shareholders were kept in the dark regarding the full financial implications of Bank of America's 2008 purchase of Merrill Lynch for $50 billion.

Merrill Lynch, a symbol of Wall Street prosperity for generations, had claimed losses of more than $8 billion in 2007 due to heavy investments in high-risk securities backed by subprime residential mortgages. As those securities plummeted in value when the bottom fell out of the housing market and foreclosures rose, Bank of America stepped in to save the company from insolvency.

A group of shareholders now allege that Bank of America executives knew that the purchase would lead to years of severe losses, all the while sharing more optimistic projections with investors. Shareholders relied on the less severe estimates when approving the Merrill Lynch purchase, and Bank of America stock lost half of its value shortly after the sale was approved.

Like anyone with fiduciary duties, top level banking executives and others responsible for large financial companies must disclose relevant facts to shareholders prior to proxy votes on large acquisitions and other important issues. The shareholder suit names Bank of America CEO Kenneth Lewis and members of the board of directors.

In an article based on a review of court documents, a New York Times financial journalist speculated that the case will revive calls for securities regulators and federal prosecutors to seek criminal consequences for prominent executives and hold them accountable for actions that led to or perpetuated the financial crisis.

Complex Criminal Defense of Accused Financial Professionals

No matter what amount is at stake in an allegedly fraudulent financial transaction, charges of wire fraud, securities fraud or fraud against the government can have serious implications for corporate officers, directors and employees such as brokers. People in those roles who feel the heat of an investigation must be aware of the perils of self-incrimination before formal charges are even filed. A white collar fraud defense attorney can help clients fight back against unfounded or overstated suspicions and assert their statutory and Constitutional protections.

Article provided by Rothman & Associates, P.A.
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