Why is Bank of America in the Hot Seat?

Shareholders are up in arms about a potential settlement in the lawsuit over Bank of America’s (NYSE:BAC) acquisition of Merrill Lynch, while a separate federal securities lawsuit against the company may prove much more lucrative.

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According to The New York Times, Delaware plaintiffs are outraged at the possibility of a $20 million settlement in the class action lawsuit brought by Bank of America shareholders. Delaware plaintiffs apparently consider the settlement to be insufficient.

The shareholder lawsuits are largely based on state laws and seek to prove that the company’s board breached its fiduciary duty to the company by acquiring the poorly-performing Merrill Lynch. The claim is a difficult one to prove. Damages would be paid to Bank of America via insurance.

The federal securities lawsuit, on the other hand, alleges that Bank of America and some of its directors failed to disclose several problems at Merrill Lynch in its proxy statement. A victory in the federal case is more likely and damages would be paid directly to shareholders.

On Friday, Delaware Chancellor Leo E. Strine Jr. denied accusations that Delaware plaintiffs would try to prevent a settlement of the shareholder cases in New York. The federal trial is set to begin in October.

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