Bank of America 2011 Annual Report Download - page 225

Bank of America 2011 223
Montgomery
The Corporation, several current and former officers and directors,
BAS, MLPF&S 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, January 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 adequacy 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.
Defendants moved to dismiss for failure to state a claim. On
February 9, 2012, the magistrate judge (to whom dispositive
motions were referred for a report and recommendation)
concluded that the amended complaint does not adequately plead
claims under the Securities Act of 1933 and recommended that
the district court dismiss the amended complaint in its entirety
and deny plaintiffs’ request to amend the complaint without
prejudice, which the district court will consider.
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 a number of 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
purported class action suits and actions by individual MBS
purchasers. Although the allegations vary by lawsuit, these cases
generally allege that the registration statements, prospectuses
and prospectus supplements for securities issued by
securitization trusts contained material misrepresentations and
omissions, in violation of Sections 11, 12 and 15 of the Securities
Act of 1933, Sections 10(b) and 20 of the Securities Exchange
Act of 1934 and/or state securities laws and other state statutory
and common laws.
These cases generally involve allegations of false and
misleading statements 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; (iv) the underwriting practices
by which those mortgage loans were originated; (v) the ratings
given to the different tranches of MBS by rating agencies; and (vi)
the validity of each issuing trust’s title to the mortgage loans
comprising the pool for that securitization (collectively, MBS
Claims). Plaintiffs in these cases generally seek unspecified
compensatory damages, unspecified costs and legal fees and, in
some instances, seek rescission. A number of other entities
(including the National Credit Union Administration) have
threatened legal actions against the Corporation and its affiliates,
Countrywide entities and their affiliates, and Merrill Lynch entities
and their affiliates concerning MBS offerings.
On August 15, 2011, the JPML ordered multiple federal court
cases involving Countrywide MBS consolidated for pretrial
purposes in the U.S. District Court for the Central District of
California, in a multi-district litigation entitled In re Countrywide
Financial Corp. Mortgage-Backed Securities Litigation (the
Countrywide RMBS MDL).
AIG Litigation
On August 8, 2011, American International Group, Inc. and certain
of its affiliates (collectively, AIG) filed a complaint in New York
Supreme Court, New York County, in a case entitled American
International Group, Inc. et al. v. Bank of America Corporation et al.
AIG has named the Corporation, Merrill Lynch, CHL and a number
of related entities as defendants. AIG’s complaint asserts certain
MBS Claims pertaining to 347 MBS offerings and two private
placements in which it alleges that it purchased securities between
2005 and 2007. AIG seeks rescission of its purchases or a
rescissory measure of damages or, in the alternative,
compensatory damages of no less than $10 billion; punitive
damages; and other unspecified relief. Defendants removed the
case to the U.S. District Court for the Southern District of New
York and filed a notice with the JMDL seeking to add the case to
the Countrywide RMBS MDL. The district court denied AIG’s motion
to remand the case to state court. Plaintiffs are seeking an
interlocutory appeal to the U.S. Court of Appeals for the Second
Circuit following the district court’s certification. On December 21,
2011, the JMDL transferred the Countrywide MBS claims to the
Countrywide RMBS MDL. The non-Countrywide MBS claims will be
heard in the U.S. District Court for the Southern District of New
York.
Dexia Litigation
Dexia Holdings, Inc. and others filed an action on January 24,
2011 against CFC, the Corporation, several related entities, and
former directors and officers of Countrywide in New York Supreme
Court, New York County entitled Dexia Holdings, Inc., et al., v.
Countrywide Financial Corporation, et al. The complaint asserts
certain MBS Claims relating to plaintiffs’ alleged purchases of
MBS issued by CFC-related entities in 142 MBS offerings and six
private placements between April 2004 and August 2007 and
seeks unspecified compensatory and/or rescissory damages,
punitive damages and other unspecified relief. Defendants
removed the case to the U.S. District Court for the Southern District
of New York, and on August 15, 2011, the JMDL transferred the
case to the Countrywide RMBS MDL. On November 8, 2011, the
Countrywide RMBS MDL denied plaintiffs’ motion to remand the
case to New York Supreme Court. On February 17, 2012, the
Countrywide RMBS MDL granted in substantial part defendants'
motion to dismiss, dismissing with prejudice all federal law claims