Bank of America 2007 Annual Report Download - page 149

bonds that mature at the preset future date. The Corporation is required to
fund any shortfall at the preset future date between the proceeds of the
liquidated assets and the purchase price of the zero-coupon bonds. These
guarantees are booked as derivatives and marked to market in the trading
portfolio. At December 31, 2007 and 2006, the notional amount of these
guarantees totaled $1.5 billion and $4.0 billion. These guarantees have
various maturities ranging from two to five years. At December 31, 2007
and 2006, the Corporation had not made a payment under these products
and has assessed the probability of payments under these guarantees as
remote.
The Corporation has entered into additional guarantee agreements,
including lease end obligation agreements, partial credit guarantees on
certain leases, real estate joint venture guarantees, sold risk participation
swaps and sold put options that require gross settlement. The maximum
potential future payment under these agreements was approximately $4.8
billion and $2.0 billion at December 31, 2007 and 2006. The estimated
maturity dates of these obligations are between 2008 and 2033. The
Corporation has made no material payments under these guarantees.
For additional information on recourse obligations related to resi-
dential mortgage loans sold and other guarantees related to securitiza-
tions, see Note 8 – Securitizations to the Consolidated Financial
Statements.
Litigation and Regulatory Matters
In the ordinary course of business, the Corporation and its subsidiaries
are routinely defendants in or parties to many pending and threatened
legal actions and proceedings, including actions brought on behalf of vari-
ous classes of claimants. Certain of these actions and proceedings are
based on alleged violations of consumer protection, securities, environ-
mental, banking, employment and other laws. In certain of these actions
and proceedings, claims for substantial monetary damages are asserted
against the Corporation and its subsidiaries.
In the ordinary course of business, the Corporation and its sub-
sidiaries are also subject to regulatory examinations, information gathering
requests, inquiries and investigations. Certain subsidiaries of the Corpo-
ration are registered broker/dealers or investment advisors and are sub-
ject to regulation by the Securities and Exchange Commission (SEC), the
Financial Industry Regulatory Authority, the New York Stock Exchange and
state securities regulators. In connection with formal and informal
inquiries by those agencies, such subsidiaries receive numerous requests,
subpoenas and orders for documents, testimony and information in con-
nection with various aspects of their regulated activities.
In view of the inherent difficulty of predicting the outcome of such liti-
gation and regulatory matters, particularly where the claimants seek very
large or indeterminate damages or where the matters present novel legal
theories or involve a large number of parties, the Corporation cannot state
with confidence what the eventual outcome of the pending matters will be,
what the timing of the ultimate resolution of these matters will be, or what
the eventual loss, fines or penalties related to each pending matter may
be.
In accordance with SFAS No. 5, “Accounting for Contingencies”, the
Corporation establishes reserves for litigation and regulatory matters when
those matters present loss contingencies that are both probable and
estimable. When loss contingencies are not both probable and estimable,
the Corporation does not establish reserves. In some of the matters
described below, including but not limited to a substantial portion of the
Parmalat Finanziaria S.p.A. matters, loss contingencies are not both prob-
able and estimable in the view of management, and, accordingly, reserves
have not been established for those matters. Based on current knowledge,
management does not believe that loss contingencies, if any, arising from
pending litigation and regulatory matters, including the litigation and regu-
latory matters described below, will have a material adverse effect on the
consolidated financial position or liquidity of the Corporation, but may be
material to the Corporation’s operating results for any particular reporting
period.
Adelphia Communications Corporation (ACC)
Adelphia Recovery Trust is the plaintiff in a lawsuit pending in the U.S.
District Court for the Southern District of New York. The lawsuit names
over 700 defendants, including Bank of America, N.A. (BANA), Banc of
America Securities, LLC (BAS), Fleet National Bank, Fleet Securities, Inc.
and other affiliated entities, and asserts over 50 claims under federal
statutes and state common law. The principal claims include fraudulent
transfer, aiding and abetting fraud, aiding and abetting breach of fiduciary
duty, and equitable disallowance and subordination. These claims relate
to loans and other services provided to various affiliates of ACC and enti-
ties owned by members of the founding family of ACC. The plaintiffs seek
unspecified damages in an amount not less than $5 billion.
Data Treasury Litigation
The Corporation and BANA have been named as defendants in two cases
filed by Data Treasury Corporation (Data Treasury) in the U.S. District Court
for the Eastern District of Texas. In one case, Data Treasury alleges that
defendants “provided, sold, installed, utilized, and assisted others to use
and utilize image-based banking and archival solutions” in a manner that
infringes United States Patent Nos. 5,910,988 and 6,032,137. In the
other case, Data Treasury alleges that the Corporation and BANA, among
other defendants, are “making, using, selling, offering for sale, and/or
importing into the United States, directly, contributory, and/or by induce-
ment, without authority, products and services that fall within the scope of
the claims of” United States Patent Nos. 5,265,007; 5,583,759;
5,717,868; and 5,930,778. Data Treasury seeks unspecified damages
and injunctive relief in both cases.
In re Initial Public Offering Securities Litigation
Beginning in 2001, Robertson Stephens, Inc. (an investment banking
subsidiary of FleetBoston that ceased operations during 2002), BAS, other
underwriters, and various issuers and others, were named as defendants
in certain of the 309 putative class action lawsuits that have been con-
solidated in the U.S. District Court for the Southern District of New York as
In re Initial Public Offering Securities Litigation. Plaintiffs contend that the
defendants failed to make certain required disclosures and manipulated
prices of securities sold in initial public offerings through, among other
things, alleged agreements with institutional investors receiving alloca-
tions to purchase additional shares in the aftermarket and seek
unspecified damages. On December 5, 2006, the U.S. Court of Appeals
for the Second Circuit reversed the District Court’s order certifying the
proposed classes. On September 27, 2007, plaintiffs filed a motion to
certify modified classes, which defendants have opposed. On June 25,
2007, the District Court approved an agreement between plaintiffs and
298 of the issuer defendants terminating their proposed settlement.
IPO Underwriting Fee Litigation
BAS, Robertson Stephens, Inc., and other underwriters are defendants in
putative class action lawsuits captioned In re Public Offering Fee Antitrust
Litigation and In re Issuer Plaintiff Initial Public Offering Fee Antitrust Liti-
gation, filed in the U.S. District Court for the Southern District of New York
in November 1998 and October 2000, respectively, alleging that under-
writers conspired to fix the underwriters’ discount at 7% of the offering
Bank of America 2007 147