Bank of America knew that AIG was about to try to sue its pants off as far back as January, but it never told investors on any of its conference calls or in any of its regulatory filings, sources tell Reuters. Public companies are supposed to disclose legal threats to their stock prices, and when the $10 billion AIG suit was announced earlier this month, it sent the bank’s stock plummeting 20%.
But the SEC’s disclosure rules are exceedingly murky, leaving it up to management to decide how likely legal threats are to matter. “This is a classic problem in the disclosure regime,” said one corporate governance professor. “The question is, ‘is it material?’ … It’s very hard to evaluate.” Still, Bank of America’s non-disclosure will hardly inspire confidence. “Management surely has a credibility problem,” said the manager of one fund that owns BofA shares. “They continue to under-address or under-disclose on the mortgage issue.”