Bank of America walks into legal hornet's nest

In a risky move, Bank of America's (BAC) board will turn over documents disclosing the legal advice it received regarding the buy-out of Merrill Lynch. The information could be considered "untouchable" under attorney-client privilege rules, but B of A wants to appear very cooperative with government probes.

According toThe Wall Street Journal, which broke the story, "The new, more-conciliatory legal approach is in part intended to pave the way to a settlement of various investigations." NY Attorney General Cuomo will receive the documents, and under a similar arrangement with the bank, the SEC is likely to get them as well.

The risk of the bank's new plan is two-fold. The first is that the documents will show that the legal advice given to the board was not taken, and that the bank went ahead with a proxy that was misleading about the details of the Merrill transaction. The proxy almost certainly obscured certain information about Merrill bonuses and when they were approved.

The second risk is that U.S. District Judge Jed Rakoff will not consider the document disclosure adequate as the grounds for a settlement with the SEC and will force a trial. Rakoff said he would not sanction an earlier settlement between the bank and the agency and that has caused legal authorities to press the bank to disclose information on how and why it made decisions about the Merrill buy-out and the brokerage firm's bonus programs.

B of A's board may have decided that it had no other choice than to knuckle under to authorities to show it was not going to hide information, but in the process it may have opened a legal Pandora's box.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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