Bank of America 2008 Annual Report Download - page 158

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 5, the Corporation establishes reserves for
litigation and regulatory matters when those matters present loss con-
tingencies that are both probable and estimable. When loss con-
tingencies are not both probable and estimable, the Corporation does not
establish reserves. In some of the matters described below, including but
not limited to the Lehman Brothers Holdings, Inc. matters, loss con-
tingencies are not both probable and estimable in the view of manage-
ment, 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 regulatory 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
Adelphia Recovery Trust is the plaintiff in a lawsuit pending in the U.S.
District Court for the Southern District of New York (SDNY). The lawsuit
originally named over 700 defendants, including Bank of America, N.A.
(BANA), Banc of America Securities LLC (BAS), Merrill Lynch & Co., Inc.,
Merrill Lynch Capital Corp. (collectively Merrill Lynch), Fleet National Bank,
Fleet Securities, Inc. (collectively Fleet) and other affiliated entities, and
asserted over 50 claims under federal statutes and state common law
relating to loans and other services provided to various affiliates of ACC
and entities owned by members of the founding family of Adelphia
Communications Corporation. The plaintiffs seek unspecified damages in
an amount not less than $5 billion. The District Court granted in part
defendants’ motions to dismiss, which resulted in the dismissal of
approximately 650 defendants from the lawsuit. The plaintiffs have
appealed the dismissal decision. The primary claims remaining against
BANA, BAS, Merrill Lynch, and Fleet include fraud, aiding and abetting
fraud, and aiding and abetting breach of fiduciary duty. Trial is scheduled
for February 2010.
Auction Rate Securities (ARS) Claims
On May 22, 2008, a putative class action, Bondar v. Bank of America
Corporation, was filed in the U.S. District Court for the Northern District of
California against the Corporation, Banc of America Investment Services,
Inc. (BAI) and BAS (collectively Bank of America) on behalf of persons who
purchased auction rate securities (ARS) from the defendants. The
amended complaint, which was filed on January 22, 2009, alleges,
among other things, that Bank of America manipulated the market for,
and failed to disclose material facts about, ARS and seeks to recover
unspecified damages for losses in the market value of ARS allegedly
caused by the decision of the Company and other broker-dealers to dis-
continue supporting auctions for the securities. On February 12, 2009,
the Judicial Panel on Multidistrict Litigation consolidated Bondar and two
related, individual federal actions into one proceeding in the U.S. District
Court for the Northern District of California.
On March 25, 2008, a putative class action, Burton v. Merrill Lynch &
Co., Inc., et al., was filed in the U.S. District Court for the Southern Dis-
trict of New York against Merrill Lynch on behalf of persons who pur-
chased and continue to hold ARS offered for sale by Merrill Lynch
between March 25, 2003 and February 13, 2008. The complaint alleges,
among other things, that Merrill Lynch failed to disclose material facts
about ARS. A similar action, captioned Stanton v. Merrill Lynch & Co.,
Inc., et al., was filed the next day in the same court. On October 31,
2008, the two cases were consolidated, and on December 10, 2008, a
consolidated class action amended complaint was filed. Plaintiffs seek to
recover alleged losses in the market value of ARS allegedly caused by the
decision of Merrill Lynch to discontinue supporting auctions for the secu-
rities. Responses to the amended complaint were due on February 27,
2009.
On September 4, 2008, two civil antitrust putative class actions, City
of Baltimore v. Citigroup et al., and Mayfield v. Citigroup et al., were filed
in the U.S. District Court for the Southern District of New York against the
Corporation, Merrill Lynch, and other financial institutions alleging that
the defendants conspired to restrain trade in ARS by artificially supporting
auctions and later withdrawing that support. City of Baltimore is filed on
behalf of a class of issuers of ARS underwritten by the defendants
between May 12, 2003 and February 13, 2008 who seek to recover the
alleged above-market interest payments they claim they were forced to
make when the Corporation, Merrill Lynch and others allegedly dis-
continued supporting ARS. The plaintiffs who also purchased ARS also
seek to recover claimed losses in the market value of those securities
allegedly caused by the decision of the financial institutions to dis-
continue supporting auctions for the securities. Plaintiffs seek treble
damages and to rescind at par their purchases of ARS. Mayfield is filed
on behalf of a class of persons who acquired ARS directly from defend-
ants and who held those securities as of February 13, 2008. Plaintiffs
seek to recover alleged losses in the market value of ARS allegedly
caused by the decision of the Corporation and Merrill Lynch and others to
discontinue supporting auctions for the securities. Plaintiffs seek treble
damages and to rescind at par their purchases of ARS. On January 15,
2009, defendants, including the Corporation and Merrill Lynch, filed a
motion to dismiss the complaints.
On September 10, 2008, Bank of America announced an agreement
in principle with the Massachusetts Securities Division, without admitting
or denying allegations of wrongdoing, under which it will offer to purchase
at par ARS held by certain customers. On October 8, 2008, Bank of Amer-
ica announced agreements in principle with the SEC, the Office of the
New York State Attorney General (NYAG), and the North American Secu-
rities Administrators Association. The agreements are substantially sim-
ilar except that the agreement with the NYAG requires the payment of a
penalty to be allocated among and at the discretion of the settling states.
In addition, the agreement with the SEC provides that the SEC reserves
the right to seek an additional penalty in the event it concludes Bank of
America has not satisfied its obligations under the agreement.
Merrill Lynch has entered into agreements in principle to settle regu-
latory actions related to its sale of ARS. As part of these settlements,
Merrill Lynch agreed to offer to purchase ARS held by certain individuals,
charities, and non-profit corporations and to pay a fine.
Countrywide Equity and Debt Securities Matters
Countrywide Financial Corporation (CFC), certain other Countrywide enti-
ties, and certain former officers and directors of CFC, among others, have
been named as defendants in two putative class actions filed in the U.S.
District Court for the Central District of California relating to certain CFC
equity and debt securities. One case, entitled In re Countrywide Financial
Corp. Securities Litigation, was filed by certain New York state and munici-
156 Bank of America 2008