Bank of America 2008 Annual Report Download - page 159

pal pension funds on behalf of purchasers of CFC’s common stock and
certain other equity and debt securities. The complaint alleges, among
other things, that CFC made misstatements (including in certain SEC fil-
ings) concerning the nature and quality of its loan underwriting practices
and its financial results, in violation of the antifraud provisions of the
Securities Exchange Act of 1934 and Sections 11 and 12 of the Securities
Act of 1933. Plaintiffs also assert claims against BAS, Merrill Lynch,
Pierce, Fenner & Smith, Inc. (MLPFS) and other underwriter defendants
under Sections 11 and 12 of the Securities Act of 1933. Plaintiffs seek
unspecified compensatory damages, among other remedies. On
December 1, 2008, the Court granted in part and denied in part the
defendants’ motions to dismiss the First Consolidated Amended Com-
plaint, with leave to amend certain claims. Plaintiffs have filed a Second
Consolidated Amended Complaint. A motion to dismiss is pending.
The other case, entitled Argent Classic Convertible Arbitrage Fund L.P.
v. Countrywide Financial Corp. et al., was filed in the U.S. District Court
for the Central District of California in October 2007 against CFC on
behalf of purchasers of certain Series A and B debentures issued in vari-
ous private placements pursuant to a May 16, 2007 CFC offering memo-
randum. This matter involves allegations similar to those in the In re
Countrywide Financial Corporation Securities Litigation case, asserts
claims under the antifraud provisions of the Exchange Act and California
state law, and seeks unspecified damages. Plaintiffs have filed an
amended complaint that added the Corporation as a defendant. A motion
to dismiss is pending.
CFC has also responded to subpoenas from the SEC and the U.S.
Department of Justice.
Countrywide Mortgage-Backed Securities Litigation
CFC, certain other Countrywide entities, certain former CFC officers and
directors, as well as BAS and MLPFS, are named as defendants in a
consolidated putative class action, entitled Luther v. Countrywide Home
Loans Servicing LP, et al., filed in the Superior Court of the State of Cal-
ifornia, County of Los Angeles, that relates to the public offering of vari-
ous mortgage-backed securities. The consolidated complaint alleges,
among other things, that the mortgage loans underlying these securities
were improperly underwritten and failed to comply with the guidelines and
processes described in the applicable registration statements and pro-
spectus supplements, in violation of Sections 11 and 12 of the Securities
Act of 1933 and seeks unspecified compensatory damages, among other
relief. In addition, in August 2008 a complaint was filed in the First Judi-
cial Court for the County of Santa Fe against CFC, certain other CFC enti-
ties and certain former officers and directors of CFC by three New Mexico
governmental entities that allegedly acquired certain of these mortgage-
backed securities. The complaint asserts claims under the Securities Act
and New Mexico state law. A motion to dismiss the complaint in the New
Mexico action is pending.
Countrywide State and Local Enforcement Actions
Certain state and local government officials filed proceedings against CFC
and/or various of CFC’s wholly-owned subsidiaries, including lawsuits
brought by the state attorneys general of California, Florida, Illinois,
Connecticut, Indiana and West Virginia in their respective state courts.
These lawsuits alleged, among other things, that CFC and/or its sub-
sidiaries violated state consumer protection laws by engaging in
deceptive marketing practices designed to increase the volume of loans it
originated and then sold into the secondary market. These lawsuits
sought, among other remedies, restitution, other monetary relief, penal-
ties and, in the Illinois action, rescission or repurchase of mortgage loans
made to Illinois consumers. CFC and its affiliates removed each of the
lawsuits to federal court, and they have been transferred, finally or provi-
sionally, to the U.S. District Court for the Southern District of California by
the Judicial Panel on Multidistrict Litigation. In addition, the Director of
the Washington State Department of Financial Institutions commenced an
administrative proceeding against a CFC wholly-owned subsidiary alleging,
among other things, that such subsidiary did not provide borrowers with
certain required disclosures and that the loan products made available to
Washington borrowers of protected races or ethnicities were less favor-
able than those made available to other, similarly situated borrowers.
That proceeding seeks, among other things, a monetary fine and an order
barring the CFC subsidiary from making consumer loans in the state of
Washington for five years. The state lawsuits have been settled finally or
in principle, except for the lawsuit brought by Indiana. The settlement
provides for a loan modification program, principally for subprime and pay
option ARM borrowers, and a nationwide fund of up to $150 million for
foreclosure relief programs designated by certain settling states and for
payments to individuals whose property was foreclosed and, prior to fore-
closure, had made few mortgage payments. The settlements with all of
the states except Connecticut have been documented and filed in state
court, leading to the dismissal of the federal court cases as to CFC and/
or its affiliates, and the remaining settlements are subject to the negotia-
tion and execution of agreements and the Court’s approval of such
agreements.
Countrywide Bond Insurance Litigation
In September 2008, CFC and other Countrywide entities were named as
defendants in an action filed by MBIA Insurance Corporation (MBIA) in
New York Supreme Court. The action relates to bond insurance policies
provided by MBIA with regard to certain securitized pools of home equity
lines of credit and fixed-rate second lien mortgage loans. MBIA allegedly
has paid claims as a result of defaults in the underlying loans, and claims
that these defaults are the result of improper underwriting. The complaint
alleges misrepresentation and breach of contract, among other claims,
and seeks unspecified actual and punitive damages, and attorneys’ fees.
The Countrywide defendants have filed a motion to dismiss the primary
claims in the action.
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
inducement, 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. This matter has
been scheduled for trial in the fall of 2009.
Enron Litigation
On April 8, 2002, Merrill Lynch & Co., Inc. and MLPFS (collectively Merrill
Lynch) were added as defendants in a consolidated class action, entitled
Newby v. Enron Corp. et al., filed in the U.S. District Court for the South-
ern District of Texas on behalf of certain purchasers of Enron’s publicly
traded equity and debt securities. The complaint alleges, among other
things, that Merrill Lynch engaged in improper transactions that helped
Enron misrepresent its earnings and revenues. The District Court denied
Merrill Lynch’s motion to dismiss and certified a class action by Enron
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