A proposed $2.42 billion cash deal to settle shareholder claims that Bank of America misled investors about its purchase of Merrill Lynch is scheduled to go before a federal judge in New York on Friday.

The settlement was announced in September but has yet to receive needed court approval.

The hearing before Judge Kevin Castel, of the Southern District of New York, is designed to determine whether the proposed settlement and allocation plan are fair. Castel also is being asked to approve attorneys fees.

The settlement was reached after shareholders claimed, among other things, that they had not been given information on Merrill s deteriorating financial health before they voted Dec. 5, 2008, to approve the $50 billion purchase of the company.

Bank of America denies the investors allegations and has said it decided to settle to avoid further litigation.

Lead plaintiffs in the class-action case include the teachers retirement systems in Ohio and Texas, the Ohio Public Employees Retirement System and a pension fund in the Netherlands.

In part, the settlement applies to those who owned Bank of America common shares as of Oct. 10, 2008, and had the right to vote on the Merrill deal and those who acquired common shares from Sept. 18, 2008, through Jan. 21, 2009. Some other stockholders also are affected.

April 25 is the deadline for affected investors to file a claim.

According to the settlement notice, the lead plaintiffs damages expert has estimated that the average payment to Bank of America shareholders could be 43 cents a share before attorneys fees and other legal costs are deducted.

Ken Lewis was CEO of Bank of America when the Merrill purchase was being negotiated in 2008. The deal created a brouhaha when shareholders said it wasn t until after they OK d the purchase that they learned crucial details about Merrill. Shareholders said they were kept in the dark about Merrill s billions of dollars in premerger losses and $5.8 billion in bonuses that Bank of America had approved for Merrill executives and employees.

Investors also alleged that documents filed with the U.S. Securities and Exchange Commission to solicit approval from shareholders for the merger misstated Merrill s financial state, among other things.

Lewis announced his resignation in 2009. The following year, Brian Moynihan took over as CEO.

The attorneys for the plaintiffs are seeking fees totaling 6.56 percent of the $2.42 billion settlement, or $159 million. According to the settlement notice, the attorneys also want to be reimbursed up to $17.5 million in litigation expenses stemming from prosecuting and resolving the case.

Bank of America recorded the hit from the settlement in the third quarter of last year. During the quarter, it suffered $1.6 billion in litigation expenses, up from $566 million in the same quarter the year before.

In addition to the Merrill case, Bank of America has agreed to pay billions to settle claims in the wake of its 2008 purchase of mortgage lender Countrywide Financial, which has been accused of mortgage-related abuses. Just this week, the National Credit Union Administration said it has reached a settlement with Bank of America, which will pay $165 million to cover losses stemming from purchases of residential mortgage-backed securities by failed corporate credit unions.

Some analysts continue to express concern about Bank of America s vulnerability to additional lawsuits.

In particular, we remain concerned with BAC s potential litigation and outstanding mortgage repurchase risk, analysts with Sterne Agee & Leach wrote this week.

Litigation appears to have only accelerated over the last 12 months as private investors, correspondents and various government agencies/reps continue to pursue legal claims against the largest banks.

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