Bank of America 2010 Annual Report Download - page 207

duties by failing to provide accurate and complete information to shareholders
regarding: (i) certain Acquisition-related events; (ii) the potential for litigation
resulting from Countrywide’s lending practices; and (iii) the risk posed to the
Corporation’s capital levels as a result of Countrywide’s loan losses. The
complaint also asserts claims against the individual defendants for breach of
fiduciary duty by failing to maintain adequate internal controls, unjust enrich-
ment, abuse of control and gross mismanagement in connection with the
supervision and management of the operations, business and disclosure
controls of the Corporation. The Corporation is named as a nominal defendant
only and no monetar y relief is sought against it. The complaint seeks, among
other things, unspecified monetary damages, equitable remedies and other
relief. On December 14, 2010, the court entered an order dismissing the
complaint without prejudice.
The Corporation and certain of its current and former directors are also
named as defendants in several putative class and derivative actions in the
Delaware Court of Chancery, including Rothbaum v. Lewis;Southeastern
Pennsylvania Transportation Authority v. Lewis; Tremont Partners LLC v.
Lewis; Kovacs v. Lewis; Stern v. Lewis;andHoux v. Lewis, brought by share-
holders alleging breaches of fiduciary duties and waste of corporate assets in
connection with the Acquisition. On April 27, 2009, the Delaware Court of
Chancery consolidated the derivative actions under the caption In re Bank of
America Corporation Stockholder Derivative Litigation. The complaint seeks,
among other things, unspecified monetary damages, equitable remedies and
other relief. On April 30, 2009, the putative class claims in the Stern v. Lewis
and Houx v. Lewis actions were voluntarily dismissed without prejudice. Trial is
scheduled for October 2012.
ERISA Actions
On October 9, 2009, plaintiffs in the ERISA actions in the In re Bank of
America Securities, Derivative and Employment Retirement Income Security
Act (ERISA) Litigation (the ERISA Plaintiffs) filed a consolidated amended
complaint for breaches of duty under ERISA. The amended complaint is
brought on behalf of a purported class that consists of participants in the
Corporation’s 401(k) Plan, the Corporation’s 401(k) Plan for Legacy Compa-
nies, the CFC 401(k) Plan (collectively, the 401(k) Plans) and the Corpora-
tion’s Pension Plan. The amended complaint alleges violations of ERISA,
based on, among other things: (i) an alleged failure to prudently and loyally
manage the 401(k) Plans and Pension Plan by continuing to offer the
Corporation’s common stock as an investment option or measure for partic-
ipant contributions; (ii) an alleged failure to monitor the fiduciaries of the
401(k) Plans and Pension Plan; (iii) an alleged failure to provide complete and
accurate information to the 401(k) Plans and Pension Plan participants with
respect to the Merrill Lynch and Countrywide acquisitions and related mat-
ters; and (iv) alleged co-fiduciary liability for these purported fiduciary
breaches. The amended complaint seeks unspecified monetary damages,
equitable remedies and other relief. On August 27, 2010, the court dismissed
the complaint brought by plaintiffs in the consolidated ERISA action in its
entirety. The ERISA Plaintiffs filed a notice of appeal of the court’s dismissal of
their actions. The parties then stipulated to the dismissal of the appeal with
the agreement that the ERISA Plaintiffs can reinstate their appeal at any time
up until July 27, 2011.
NYAG Action
On February 4, 2010, the New York Attorney General (NYAG) filed a civil
complaint in the Supreme Court of New York State, entitled People of the
State of New York v. Bank of America, et al. The complaint names as
defendants the Corporation and the Corporation’s former CEO and CFO,
and alleges violations of Sections 352, 352-c(1)(a), 352-c(1)(c), and 353
of the New York General Business Law, commonly known as the Martin Act,
and Section 63(12) of the New York Executive Law. The complaint seeks an
unspecified amount in disgorgement, penalties, restitution, and damages and
other equitable relief. The court has ordered fact discovery to be complete by
September 30, 2011.
Montgomery
The Corporation, several of its current and former officers and directors, BAS,
MLPFS and other unaffiliated underwriters have been named as defendants in
a putative class action filed in the U.S. District Court for the Southern District
of New York entitled Montgomery v. Bank of America, et al. Plaintiff filed an
amended complaint on January 14, 2011. Plaintiff seeks to sue on behalf of
all persons who acquired certain series of preferred stock offered by the
Corporation pursuant to a shelf registration statement dated May 5, 2006.
Plaintiff’s claims arise from three offerings dated January 24, 2008, Janu-
ary 28, 2008 and May 20, 2008, from which the Corporation allegedly
received proceeds of $15.8 billion. The amended complaint asserts claims
under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, and alleges
that the prospectus supplements associated with the offerings: (i) failed to
disclose that the Corporation’s loans, leases, CDOs and commercial MBS
were impaired to a greater extent than disclosed; (ii) misrepresented the
extent of the impaired assets by failing to establish adequate reserves or
properly record losses for its impaired assets; (iii) misrepresented the ade-
quacy of the Corporation’s internal controls in light of the alleged impairment
of its assets; (iv) misrepresented the Corporation’s capital base and Tier 1
leverage ratio for risk-based capital in light of the allegedly impaired assets;
and (v) misrepresented the thoroughness and adequacy of the Corporation’s
due diligence in connection with its acquisition of Countrywide. The amended
complaint seeks rescission, compensatory and other damages.
Mortgage-backed Securities Litigation
The Corporation and its affiliates, Countrywide entities and their affiliates,
and Merrill Lynch entities and their affiliates have been named as defendants
in several cases relating to their various roles as issuer, originator, seller,
depositor, sponsor, underwriter and/or controlling entity in MBS offerings,
pursuant to which the MBS investors were entitled to a portion of the cash flow
from the underlying pools of mortgages. These cases generally include pur-
ported class action suits and actions by individual MBS purchasers. Although
the allegations vary by lawsuit, these cases generally allege that the regis-
tration statements, prospectuses and prospectus supplements for securities
issued by securitization trusts contained material misrepresentations and
omissions, in violation of Sections 11 and 12 of the Securities Act of 1933
and/or state securities laws and other state statutory and common laws.
These cases generally involve allegations of false and misleading state-
ments regarding: (i) the process by which the properties that served as
collateral for the mortgage loans underlying the MBS were appraised; (ii) the
percentage of equity that mortgage borrowers had in their homes; (iii) the
borrowers’ ability to repay their mortgage loans; and (iv) the underwriting
practices by which those mortgage loans were originated (collectively, the
MBS Claims). In addition, several of the cases discussed below assert claims
related to the ratings given to the different tranches of MBS by rating agen-
cies. Plaintiffs in these cases generally seek unspecified compensatory
damages, unspecified costs and legal fees and, in some instances, seek
rescission.
Luther Litigation and Related Actions
David H. Luther and various pension funds (collectively, Luther Plaintiffs)
commenced a putative class action against CFC, several of its affiliates, BAS,
MLPFS and other entities and individuals in California Superior Court for Los
Angeles County entitled Luther v. Countrywide Financial Corporation, et al (the
Luther Action). The Luther Plaintiffs claim that they and other unspecified
investors purchased MBS issued by subsidiaries of CFC in 429 offerings
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