The lawsuit, filed in U.S. District Court in New York, claims the company violated the Employee Retirement Income Securities Act (ERISA) by failing to exercise the skill, care, prudence, and diligence required in administering employee retirement plans and assets.
The suit claims specifically that Bank of America (BoA) proxy statements, sent to all BoA shareholders including employees who participated in the company's retirement plan, significantly overvalued Merrill Lynch's assets and did not disclose many aspects of the teetering investment-bank's financial condition.
Reports indicate BoA CEO Ken Lewis repeatedly assured employees that all was well with the company -- even on the eve of the stunning announcements that would send BAC shares tumbling.
Late last month, Bank of America stock dropped 50 percent from $10.20 a share on Jan. 14, 2009 to $5.10 a share on Jan. 20, 2009. Since September 2008, company stock has seen a total drop of 80 percent causing hundreds of millions of dollars in losses to the company's 401(k) plan. Amidst the collapse on Jan. 15, 2009, BoA issued a memo to employee plan participants claiming, "The core of our company, Bank of America, remains strong. We are one of the world's leading financial institutions with broad earnings diversity and a large growing deposit base."
In September 2008, Bank of America began talks with Merrill Lynch regarding an acquisition. Less than two days after talks began, BoA announced the acquisition and assured investors, including plan participants, that the company conducted due diligence in reviewing risks.
In November 2008, all shareholders, including employee Plan participants, received a detailed proxy statement urging shareholders to vote in favor of the acquisition. According to the lawsuit, the proxy contained material misstatements and omissions while significantly overvaluing Merrill Lynch's assets.
Leading up to the stock's largest collapse in January, stockholders and employees learned the company would receive a $20 billion investment in preferred stock from the federal government. Unfortunately, that same day the company announced fourth quarter losses of $1.79 billion and a shocking $15.31 billion fourth quarter net loss from Merrill Lynch, its recently acquired asset.
Under ERISA law, breaching fiduciaries have an obligation to restore to the plan any losses resulting from their breaches. The lawsuit claims this responsibility falls on the company, its CEO and Chairman, Kenneth Lewis, the company's corporate benefits committee and the company's directors.
The employee 401(k) plan consists of two components, the employee stock ownership plan (ESOP) and the profit-sharing portion. All employees at Bank of America and its subsidiaries are eligible for enrollment and participation. As of December 31, 2007, the plan held about 75 million shares of BoA common stock, with a market value of $ 3 billion. According to BoA reports in early 2007, more than 200,000 employees participated in the plan.
The lawsuit seeks to represents all plan participants from Sept. 15, 2008 until present whose accounts included investments in company stock.