THE BURNED OVER DISTRICT

And the folks at the top just dropped a couple of very big loads. In this case a pair of securities fraud suits, one from the NY Attorney General's office and the other bigger one from the shareholders.

The New York attorney general’s office has a lawsuit on the matter.

More significantly, a lawsuit seeking about $50 billion was brought by some of the largest class-action law firms and is quietly advancing in the Federal District Court in Manhattan.

The plaintiffs contend that Bank of America engaged in a deliberate effort to deceive the bank’s shareholders...

Plaintiffs in this private case have the additional benefit that this claim is related to a shareholder vote. It is easier to prove securities fraud related to a shareholder vote than more typical securities fraud claims like accounting fraud. Shareholder vote claims do not require that the plaintiffs prove that the person committing securities fraud did so with awareness that the statement was wrong or otherwise recklessly made. You only need to show that the person should have acted with care.

This case is not only easier to establish, but the potential damages could also be enormous. Damages in a claim like this are calculated by looking at the amount lost as a result of the securities fraud. A court will most likely calculate this by referencing the amount that Bank of America stock dropped after the loss was announced; this is as much as $50 billion. It is a plaintiff’s lawyer’s dream.

Bank of America is facing a huge liability from this claim. It is also facing even more liability for those who bought and sold stock during this period up until Jan. 15. In a ruling on July 29, the judge in this case allowed these claims to proceed against Bank of America, Mr. Price and Mr. Lewis. The judge had already ruled that the disclosure claim related to the proxy vote could proceed.

This case is on a relatively fast track, with an October 2012 trial date.

Even a settlement of the shareholders suit would be disastrously expensive. The Bank may have to liquidate the executive pension funds to pay for this.