In lawsuits filed in New York and Georgia, shareholders of Bank of America are challenging the bank's acquisition last September of the troubled brokerage firm Merrill Lynch & Co. They say they have been misled about the deal and the bank failed to disclose the true financial health of the brokerage firm at the time of the acquisition.

A case filed in New York on Thursday seeks class-action status on behalf of the bank's shareholders, who were eligible to vote for the deal last December and those who purchased shares between 2 January and 20 January this year.

The suit lists the company, its chief executive Kenneth Lewis and former Merrill Lynch CEO John Thain as defendants.
 
It alleges that proxy statements distributed to the shareholders prior to the acquisition failed to accurately disclose Merrill's financial condition and the risks. It goes on to charge that Bank of America failed to conduct adequate research into the deal and that the directors didn't have a reasonable basis for recommending the deal.

The lawsuit alleges that the 1 January press release on the acquisition was false and misleading. It failed to mention the true status of Merrill Lynch's financial condition which was so bad that Bank of America had at one time, considered withdrawing from the deal before closing.

It says Bank of America proceeded only because the federal government promised help in absorbing losses through purchase of additional Bank of America securities diluting shareholder value (See: Fed approves Bank of America's acquisition of Merrill Lynch) 

In another case filed in New York by Stevel Sklar, an IRA account beneficiary who claims to hold 1,500 Bank of America shares the list of defendants include Lewis, Thain and two Merrill Lynch executives, Nelson Chari, chief financial officer and Gary Carlin, chief accounting officer.

Thain resigned on Thursday in the face of reports of billions of dollars in bonuses to Merrill Lynch employees in his final days as CEO (See: Former Merrill boss Thain ousted from Bank of America amid losses). 

The bonuses were paid prior to the Merrill Lynch acquisition was finalised on 1 January. At the same time Bank of America was privately telling the government that Merrill was losing money so heavily that the deal could not be concluded without more federal bailout money.

Bank of America later received an additional $20 billion from the government, to partly offset Merrill losses. Merrill lost $15 billion in the fourth quarter; losing more than $27 billion for the year.

The government helped Bank of America's acquisition of Merrill, the same weekend in September that another investment bank, Lehman Brothers, collapsed ushering the most intense period of the financial crisis.

The government also promised last week to guarantee the $97 billion in losses on Bank of America's troubled assets, accruing mostly from Merrill Lynch.