The Securities and Exchange Commission has filed an amended complaint in the Bank of America case. Two things caught our attention: one has to do with a new claim in the complaint; another has to do with what isn't in the amended complaint.
First, the new complaint doesn't include any additional defendants, and Monday was the deadline for SEC to add parties to the case. So, even though Manhattan federal district court Judge Jed Rakoff has made it clear that he wants to know which living, breathing human beings made the contested disclosure decisions, the SEC so far isn't pointing the finger at anyone. We should point out that less than a week has gone by since BofA turned over to the SEC the materials that became discoverable after it waived the attorney-client privilege. So it's certainly possible that the SEC is still analyzing those documents, and may decide to charge others later in a separate case, or ask Rakoff for permission to amend this complaint again.
Second, the SEC now asserts in its complaint for the first time that Bank of America should have disclosed to shareholders the secret disclosure schedule that contained details about the $5.8 billion allotted for Merrill bonuses, and that it failed to release a list that properly identified the contents of any omitted schedules. To get technical for a minute, the agency is now accusing the bank of violating Rule 14a-3 of the Securities Act of 1934, which details the information that must be given to shareholders. Previously, the agency had just charged BofA with false and misleading disclosure, without stating specifically that this disclosure schedule should have been revealed. These schedules cannot be used to hide material information, and the SEC maintains that the BofA bonus information is material.
This new complaint will likely keep M&A practitioners and securities lawyers wondering about how to deal with these secret disclosure schedules. As we noted in this American Lawyer article, these schedules are commonly used in M&A deals to keep hidden information that might be sensitive or embarrassing. Whether and to what extent the contents of these schedules must be disclosed has been a matter of debate in the M&A community.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.