Bank of America 2010 Annual Report Download - page 205

IPOs) of MasterCard and Visa. Plaintiffs allege that the MasterCard and Visa
IPOs violated Section 7 of the Clayton Act and Section 1 of the Sherman Act.
Plaintiffs also assert that the MasterCard IPO was a fraudulent conveyance.
Plaintiffs seek unspecified damages and to undo the IPOs. Motions to dismiss
both supplemental complaints remain pending.
The Corporation and certain of its affiliates previously entered into loss-
sharing agreements with Visa and other financial institutions in connection
with certain antitrust litigation against Visa, including Interchange. The Cor-
poration and these same affiliates have now entered into additional loss-
sharing agreements for Interchange that cover all defendants, including
MasterCard. Collectively, the loss-sharing agreements require the Corporation
and/or certain affiliates to pay 11.6 percent of the monetary portion of any
comprehensive Interchange settlement. In the event of an adverse judgment,
the agreements require the Corporation and/or certain affiliates to pay
12.8 percent of any damages associated with Visa-related claims (Visa-
related damages), 9.1 percent of any damages associated with Master-
Card-related claims, and 11.6 percent of any damages associated with
internetwork claims (internetwork damages) or not associated specifically
with Visa or MasterCard-related claims (unassigned damages).
Pursuant to Visa’s publicly-disclosed Retrospective Responsibility Plan
(the RRP), Visa placed certain proceeds from its IPO into an escrow fund (the
Escrow). Under the RRP, funds in the Escrow may be accessed by Visa and its
members, including Bank of America, to pay for a comprehensive settlement
or damages in Interchange, with the Corporation’s payments from the Escrow
capped at 12.81 percent of the funds that Visa places therein. Subject to that
cap, the Corporation may use Escrow funds to cover: 66.7 percent of its
monetary payment towards a comprehensive Interchange settlement,
100 percent of its payment for any Visa-related damages and 66.7 percent
of its payment for any internetwork and unassigned damages.
In re Initial Public Offering Securities Litigation
BAS, Merrill Lynch, MLPFS, and certain of their subsidiaries, along with other
underwriters, and various issuers and others, were named as defendants in a
number of putative class action lawsuits that have been consolidated in the
U.S. District Court for the Southern District of New York as In re Initial Public
Offering Securities Litigation. Plaintiffs contend, among other things, that
defendants failed to make certain required disclosures in the registration
statements and prospectuses for applicable offerings regarding alleged
agreements with institutional investors that tied allocations in certain offer-
ings to the purchase orders by those investors in the aftermarket. Plaintiffs
allege that such agreements allowed defendants to manipulate the price of
the securities sold in these offerings in violation of Section 11 of the Secu-
rities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934,
and SEC rules promulgated thereunder. The parties agreed to settle the
matter, for which the court granted final approval. Some putative class
members have filed an appeal, which remains pending, in the U.S. Court
of Appeals for the Second Circuit seeking reversal of the final approval.
Lehman Brothers Holdings, Inc. Litigation
Beginning in September 2008, BAS, MLPFS, Countrywide Securities Corpo-
ration (CSC) and LaSalle Financial Services Inc., along with other underwriters
and individuals, were named as defendants in several putative class action
lawsuits filed in federal and state courts. All of these cases have since been
transferred or conditionally transferred to the U.S. District Court for the
Southern District of New York under the caption In re Lehman Brothers
Securities and ERISA Litigation. Plaintiffs allege that the underwriter defen-
dants violated Section 11 of the Securities Act of 1933, as well as various
state laws, by making false or misleading disclosures about the real estate-
related investments and mortgage lending practices of Lehman Brothers
Holdings, Inc. (LBHI) in connection with various debt and convertible stock
offerings of LBHI. Plaintiffs seek unspecified damages. On June 4, 2010,
defendants filed a motion to dismiss the complaint, which remains pending.
Lehman Setoff Litigation
In 2008, following the bankruptcy filing of LBHI, Lehman Brothers Special
Financing Inc. (LBSF) owed money to BANA as a result of various terminated
derivatives transactions entered into pursuant to one or more ISDA Master
Agreements between the parties. The net termination values of these deriv-
ative transactions resulted in estimated claims by BANA against LBSF in
excess of $1.0 billion. LBHI had guaranteed this exposure and, as part of an
arrangement through which various LBHI subsidiaries and affiliates would
retain an ability to overdraw their accounts during working hours, had $500 mil-
lion in cash (plus $1.8 million in accrued interest) on deposit with BANA in a
deposit account (the Deposit Account).
On November 10, 2008, BANA exercised its right of setoff against the
Deposit Account to partially satisfy claims that BANA had asserted against
LBSF and LBHI pursuant to the ISDA agreements and the LBHI guarantee. At
the same time, BANA exercised its right of set off against five other LBHI
accounts holding an additional $7.5 million (one of which, in the amount of
approximately $500,000, was later reversed). On November 26, 2008, BANA
commenced an adversary proceeding against LBSF and LBHI in their Chap-
ter 11 bankruptcy proceedings in the U.S. Bankruptcy Court for the Southern
District of New York. BANA sought a declaration that its setoff of LBHI’s funds
was proper and not in violation of the automatic stay imposed under the
Bankruptcy Code. In response, LBHI filed counterclaims against BANA alleg-
ing that BANA had no right to set off against the $502 million held in the
Deposit Account, and that the entire setoff was in violation of the automatic
stay. LBHI sought the return of the set-off funds plus prejudgment interest and
unspecified damages for violation of the automatic stay, including attorneys’
fees and interest. LBSF and LBHI also argued in their summary judgment
papers that the entire setoff was in violation of the automatic stay, although
they did not plead turnover of the funds held in the other accounts.
On December 3, 2010, the Bankruptcy Court entered summary judgment
against BANA with respect to setoff of the Deposit Account and directed BANA
to pay to LBSF and LBHI $502 million, plus interest at nine percent per annum
from November 10, 2008 through the date of the judgment. The court
conducted a status conference on January 19, 2011 and directed the parties
to discuss and present a further order regarding LBHI’s request for sanctions
pertaining to BANA’s alleged violation of the automatic stay. LBSF and LBHI
publicly indicated that they would request turnover of the $7 million that was
set off from the other accounts plus an additional amount to account for
changes in foreign exchange rates. The parties have since agreed in principle
to settle both the sanctions issue and the question of turnover of the
additional $7 million for an irrevocable payment of $1.5 million by BANA.
The settlement, which has still to be finally documented and is subject to
approval of the Bankruptcy Court, would express that BANA admits no liability
or wrongdoing with respect to sanctions, and that LBHI and LBSF reserve no
rights to seek recovery of the $7 million, on appeal or otherwise. BANA will
oppose that request. BANA has preserved its appellate rights as to the
December 3 order and intends to file an appeal upon entry of a final order
approving the settlement.
MBIA Insurance Corporation CDO Litigation
On April 30, 2009, MBIA and LaCrosse Financial Products, LLC filed a
complaint in New York State Supreme Court, New York County, against MLPFS
and Merrill Lynch International (MLI) under the caption MBIA Insurance Cor-
poration and LaCrosse Financial Products, LLC v. Merrill Lynch Pierce Fenner
and Smith Inc.,and Merrill Lynch International. The complaint relates to
certain credit default swap and insurance agreements by which plaintiffs
provided credit protection to MLPFS and MLI and other parties on CDO
Bank of America 2010 203