Up to 20,000 May Share in Settlement of B of A Suits
As many as 20,000 people who bought BankAmerica stock during a 29-month period when the company was accused of concealing its financial problems are eligible for part of a $39.25-million lawsuit settlement announced Monday.
Anyone who bought BankAmerica stock between March 8, 1984, and Aug. 1, 1986, will share $21.1 million set aside for stockholders, according to Richard Greenfield, a Haverford, Pa., attorney who represented some shareholders. Claim forms will be mailed to eligible shareholders in late January, and a payment schedule will be established this spring.
Greenfield said 10,000 to 20,000 shareholders could receive “significant” amounts in the settlement.
The settlement money will not come from BankAmerica, which had set aside money to cover some of its potential liability, the bank’s chief lawyer said. Instead, the tab will be picked up by the bank’s former insurer, Employers Insurance of Wausau, Wis., as part of a joint settlement of two sets of lawsuits brought by shareholders.
The settlement, which must be approved by a federal judge in Los Angeles, was announced by BankAmerica, the San Francisco-based parent of Bank of America, California’s largest bank, and was confirmed by attorneys for shareholders who had sued the bank.
A series of civil suits by shareholders arose out of the company’s enormous losses in 1985. The suits were filed in July, 1985, after BankAmerica reported a $338-million loss in the second quarter as a result of an $892-million provision for future loan losses.
The loss surprised most analysts and shareholders, but it was only the first in a string of quarterly losses related to huge loan problems at Bank of America.
The suits charged that BankAmerica officers and directors concealed the bank’s financial condition and its lending problems from shareholders and investors in violation of federal securities law.
“Particularly, BankAmerica Corp. did not disclose the extent to which reckless and wholly imprudent loan and investment decisions by the bank jeopardized the assets, earnings and net worth of the bank and BankAmerica Corp.,” one suit said.
BankAmerica said the settlement is not an admission of liability or wrongdoing. George W. Coombe Jr., general counsel for the company, said the agreement ends costly litigation and results in a net recovery for BankAmerica.
Lawyers’ Share
The suits were divided into two categories: Class-action suits on behalf of shareholders sought a distribution of money to shareholders, and so-called derivative suits, also filed by individual shareholders, sought to have the company reimbursed by insurance for its losses.
The joint settlement requires Employers Insurance to pay a total of $39.25 million to BankAmerica to settle the derivative lawsuits, an amount termed “fair and equitable” by Sherrie R. Savett, the Philadelphia lawyer who was lead counsel for the shareholders in the derivative lawsuits.
In turn, BankAmerica will use a portion of that $39.25 million to pay its share of a $21.1-million settlement in the class-action lawsuits. Sources close to the case said BankAmerica is paying roughly two-thirds, or $14 million, of that settlement out of the derivative lawsuits’ proceeds and that Employers Insurance will pay the remaining third.
U.S. District Judge William D. Keller has scheduled a settlement hearing for April 4. He must approve the agreement, but Coombe said it would be unusual for Keller to reject the pact.
14% Limit
Keller will also decide how much of the $21.1 million will be awarded to various lawyers for the shareholders. The amount depends on the complexity of the case and the time involved but generally runs about 25% of the total. The remainder of the $21.1-million settlement will be distributed by an accounting firm to shareholders filing valid claims.
Legal fees in the derivative lawsuit, which will come out of the $39.25 million for BankAmerica, will be limited to a maximum of $5.4 million, or 14%, according to Savett. After paying the legal fees and its share of the $21.1 million, BankAmerica will be left with about $20 million.
Separately, BankAmerica said Monday that it will receive an additional $8.2 million from the insurer to cover losses sustained by the bank in a mortgage-backed securities scheme involving bank employees in 1985.
Employers Insurance canceled BankAmerica’s policy after the mortgage scam, but the insurer still was liable for the shareholders’ payments because the alleged imprudent decisions occurred before the cancellation.
BankAmerica had been escrow agent and trustee for the mortgage-backed securities, which allegedly were backed by phony or inflated mortgages on property in California and Texas. The bank took a $95-million pretax loss in that case and filed a $95-million claim against Employers Insurance.
The $8.2 million settled that claim. A suit filed in state court by the banking company against the originator of the securities, National Mortgage Equity of Palos Verdes, is pending.
