Bank of America 2010 Annual Report Download - page 210

the Maine Action on December 6, 2010. In addition to certain MBS Claims,
the Allstate Plaintiffs contend that defendants made false and misleading
statements regarding: (i) the number of borrowers who used the properties
securing the mortgage loans as their primary residence; (ii) the number of
mortgage loans in each offering that were originated under reduced docu-
mentation programs; and (iii) the standards by which the mortgage loans were
serviced after origination.
Regulatory Investigations
In addition to the MBS litigation discussed beginning on page 205, the
Corporation has also received a number of subpoenas and other informal
requests for information from federal regulators regarding MBS matters,
including inquiries related to the Corporation’s underwriting and issuance
of MBS and its participation in certain CDO offerings.
Municipal Derivatives Matters
The SEC, the Department of Justice (DOJ), the Internal Revenue Service (IRS),
the Office of Comptroller of the Currency (OCC), the Federal Reserve and a
Working Group of State Attorneys General (the Working Group) have investi-
gated the Corporation, BANA and BAS concerning possible anticompetitive
practices in the municipal derivatives industry dating back to the early 1990s.
These investigations have focused on the bidding practices for guaranteed
investment contracts, the investment vehicles in which the proceeds of
municipal bond offerings are deposited, as well as other types of derivative
transactions related to municipal bonds. On January 11, 2007, the Corpo-
ration entered a Corporate Conditional Leniency Letter with the DOJ, under
which the DOJ agreed not to prosecute the Corporation for criminal antitrust
violations in connection with matters the Corporation has reported to the DOJ,
subject to the Corporation’s continued cooperation. On December 7, 2010,
the Corporation and its affiliates settled inquiries with the SEC, OCC, IRS and
the Working Group for an aggregate amount that is not material to the
Corporation’s results of operations. In addition, the Corporation entered into
an agreement with the Federal Reserve providing for additional oversight and
compliance risk management.
BANA and Merrill Lynch, along with other financial institutions, are named
as defendants in several substantially similar class actions and individual
actions, filed in various state and federal courts by several municipalities that
issued municipal bonds, as well as purchasers of municipal derivatives.
These actions generally allege that defendants conspired to violate federal
and state antitrust laws by allocating customers, and fixing or stabilizing rates
of return on certain municipal derivatives from 1992 to the present. These
actions seek unspecified damages, including treble damages. However, as a
result of the Corporation’s receipt of the Corporate Leniency Letter from the
DOJ referenced above, the Corporation is eligible to seek a ruling that certain
civil plaintiffs are limited to single, rather than treble, damages and relief from
joint and several liability with co-defendants in the civil suits discussed below.
All of the actions have been transferred to the U.S. District Court for the
Southern District of New York and consolidated in a single proceeding, entitled
In re Municipal Derivatives Antitrust Litigation. Defendants other than BANA
and Merrill Lynch filed motions to dismiss plaintiffs’ complaints, which the
court denied in large part in April 2010. The action has otherwise been largely
stayed while the DOJ completes its criminal trials concerning other parties.
Ocala Litigation
BNP Paribas Mortgage Corporation and Deutsche Bank AG each filed claims
(the 2009 Actions) against BANA in the U.S. District Court for the Southern
District of New York entitled BNP Paribas Mortgage Corporation v. Bank of
America, N.A. and Deutsche Bank AG v. Bank of America, N.A. Plaintiffs allege
that BANA failed to properly perform its duties as indenture trustee, collateral
agent, custodian and depositary for Ocala Funding, LLC (Ocala), a home
mortgage warehousing facility, resulting in the loss of plaintiffs’ investment in
Ocala. Ocala was a wholly-owned subsidiary of Taylor, Bean & Whitaker
Mortgage Corp. (TBW), a home mortgage originator and servicer which is
alleged to have committed fraud that led to its eventual bankruptcy. Ocala
provided funding for TBW’s mortgage origination activities by issuing notes,
the proceeds of which were to be used by TBW to originate home mortgages.
Such mortgages and other Ocala assets in turn were pledged to BANA, as
collateral agent, to secure the notes. Plaintiffs lost most or all of their
investment in Ocala when, as the result of the alleged fraud committed by
TBW, Ocala was unable to repay the notes purchased by plaintiffs and there
was insufficient collateral to satisfy Ocala’s debt obligations. Plaintiffs allege
that BANA breached its contractual, fiduciary and other duties to Ocala,
thereby permitting TBW’s alleged fraud to go undetected. Plaintiffs seek
compensatory damages and other relief from BANA, including interest and
attorneys’ fees, in an unspecified amount, but which plaintiffs allege exceeds
$1.6 billion. BANA’s motions to dismiss these actions are currently pending.
On August 30, 2010, plaintiffs each filed a new lawsuit (the 2010 Actions)
against BANA in the U.S. District Court for the Southern District of Florida
entitled BNP Paribas Mortgage Corporation v. Bank of America, N.A. and
Deutsche Bank AG v. Bank of America, N.A., which the parties agreed to
transfer to the U.S. District Court for the Southern District of New York as
related to the 2009 Actions. The 2010 Actions assert an alternative theory for
plaintiffs to recover a portion of their Ocala losses from BANA. Plaintiffs allege
that BANA’s commercial division purchased from TBW participation interests
in pools of mortgage loans that allegedly included loans that were already
pledged as collateral for plaintiffs’ Ocala notes. Plaintiffs allege that the
purchase of these participation interests constituted conversion of the un-
derlying mortgage loans and that BANA is thus required to reimburse plaintiffs
for the value of these loans. Plaintiffs seek compensatory and other dam-
ages, interest and attorneys’ fees in amounts that are unspecified but which
plaintiffs allege exceed approximately $665 million, representing a portion of
the same losses alleged in the 2009 Actions. BANA’s motion to dismiss the
2010 Actions was argued in the U.S. District Court for the Southern District of
New York on January 26, 2011.
On October 1, 2010, BANA, on behalf of Ocala’s investors, filed suit in the
U.S. District Court for the District of Columbia against the Federal Deposit
Insurance Corporation (FDIC) as receiver of Colonial Bank (TBW’s primary
bank) and Platinum Community Bank (a wholly-owned subsidiary of TBW)
entitled Bank of America, National Association as indenture trustee, custo-
dian and collateral agent for Ocala Funding, LLC v. Federal Deposit Insurance
Corporation. The suit seeks judicial review of the FDIC’s denial of the admin-
istrative claims brought by BANA, on behalf of Ocala, in the FDIC’s Colonial
and Platinum receivership proceedings. BANA’s claims allege that Ocala’s
losses were in whole or in part the result of Colonial’s and Platinum’s
participation in TBW’s alleged fraud. BANA seeks a court order requiring
the FDIC to allow BANA’s claims in an amount equal to Ocala’s losses and,
accordingly, to permit BANA, as trustee, collateral agent, custodian and
depositary for Ocala, to share appropriately in distributions of any receivership
assets that the FDIC makes to creditors of the two failed banks.
Parmalat
On November 23, 2005, the Official Liquidators of Food Holdings Limited and
Dairy Holdings Limited, two entities in liquidation proceedings in the Cayman
Islands, filed a complaint in the U.S. District Court for the Southern District of
New York, entitled Food Holdings Ltd, et al. v. Bank of America Corp., et al.,
against the Corporation and several related entities. Plaintiffs allege that the
Corporation and other defendants conspired with Parmalat, which was ad-
mitted to insolvency proceedings in Italy in December 2003, in carrying out
transactions involving the plaintiffs in connection with the funding of Parma-
lat’s Brazilian entities. Plaintiffs assert claims for fraud, negligent misrepre-
sentation, breach of fiduciary duty and other related claims. The complaint
208 Bank of America 2010