Bank of America 2012 Annual Report Download - page 228

226 Bank of America 2012
from the current estimate. Those matters for which an estimate
is not possible are not included within this estimated range.
Therefore, this estimated range of possible loss represents what
the Corporation believes to be an estimate of possible loss only
for certain matters meeting these criteria. It does not represent
the Corporation’s maximum loss exposure. Information is provided
below regarding the nature of all of these contingencies and, where
specified, the amount of the claim associated with these loss
contingencies. Based on current knowledge, management does
not believe that loss contingencies arising from pending matters,
including the matters described herein, will have a material
adverse effect on the consolidated financial position or liquidity
of the Corporation. However, in light of the inherent uncertainties
involved in these matters, some of which are beyond the
Corporation’s control, and the very large or indeterminate damages
sought in some of these matters, an adverse outcome in one or
more of these matters could be material to the Corporation’s
results of operations or cash flows for any particular reporting
period.
Auction Rate Securities Litigation
Since October 2007, the Corporation, Merrill Lynch and certain
affiliates have been named as defendants in a variety of lawsuits
and other proceedings brought by customers, both individual and
institutional investors, and issuers regarding auction rate
securities (ARS). These actions generally allege that defendants:
(i) misled plaintiffs into believing that there was a deeply liquid
market for ARS, and (ii) failed to adequately disclose their or their
affiliates’ practice of placing their own bids to support ARS
auctions. Plaintiffs assert that ARS auctions started failing from
August 2007 through February 2008 when defendants and other
broker/dealers stopped placing those “support bids.” In addition
to the matters described in more detail below, arbitrations and
individual lawsuits have been filed against the Corporation, Merrill
Lynch and certain affiliates by parties who purchased ARS and are
seeking relief that includes compensatory and punitive damages
and rescission, among other relief.
Antitrust Actions
On September 4, 2008, two putative antitrust class actions were
filed against the Corporation, Merrill Lynch and other financial
institutions in the U.S. District Court for the Southern District of
New York. Plaintiffs in both actions assert federal antitrust claims
under Section 1 of the Sherman Act based on allegations that
defendants conspired to restrain trade in ARS by placing support
bids in ARS auctions, only to collectively withdraw those bids in
February 2008, which allegedly caused ARS auctions to fail. In the
first action, Mayor and City Council of Baltimore, Maryland v.
Citigroup, Inc., et al., plaintiff seeks to represent a class of issuers
of ARS that defendants underwrote between May 12, 2003 and
February 13, 2008. This issuer action seeks to recover, among
other relief, the alleged above-market interest payments that ARS
issuers allegedly have had to make after defendants allegedly
stopped placing “support bids” in ARS auctions. In the second
action, Mayfield, et al. v. Citigroup, Inc., et al., plaintiff seeks to
represent a class of investors that purchased ARS from defendants
and held those securities when ARS auctions failed on February
13, 2008. Plaintiff seeks to recover, among other relief,
unspecified damages for losses in the ARS’ market value, and
rescission of the investors’ ARS purchases. Both actions also seek
treble damages and attorneys’ fees under the Sherman Act’s
private civil remedy. On January 25, 2010, the court dismissed
both actions with prejudice and plaintiffs’ respective appeals are
currently pending in the U.S. Court of Appeals for the Second
Circuit.
Countrywide Bond Insurance Litigation
The Corporation, Countrywide and other Countrywide entities are
subject to claims from several monoline bond insurance
companies. These claims generally relate to bond insurance
policies provided by the insurers on securitized pools of home
equity line of credit (HELOC) and fixed-rate second-lien mortgage
loans. Plaintiffs in these cases generally allege that they have paid
claims as a result of defaults in the underlying loans and assert
that the Countrywide defendants misrepresented the
characteristics of the underlying loans and breached certain
contractual representations and warranties regarding the
underwriting and servicing of the loans. Plaintiffs also allege that
the Corporation is liable based on successor liability theories.
Ambac
The Corporation, Countrywide and other Countrywide entities are
named as defendants in an action filed on September 29, 2010
by Ambac Assurance Corporation (Ambac) entitled Ambac
Assurance Corporation and The Segregated Account of Ambac
Assurance Corporation v. Countrywide Home Loans, Inc., et al. This
action, currently pending in New York Supreme Court, New York
County, relates to bond insurance policies provided by Ambac on
certain securitized pools of first-lien HELOC and fixed-rate second-
lien mortgage loans. Damages sought by Ambac include the
amount of payments for current and future claims it has paid or
will pay under the policies, increasing over time as it pays claims
under relevant policies.
FGIC
The Corporation, Countrywide and other Countrywide entities are
named as defendants in an action filed on December 11, 2009
by Financial Guaranty Insurance Company (FGIC) entitled Financial
Guaranty Insurance Co. v. Countrywide Home Loans, Inc. This action,
currently pending in New York Supreme Court, New York County,
relates to bond insurance policies provided by FGIC on securitized
pools of HELOC and fixed-rate second-lien mortgage loans.
Damages sought by FGIC include the amount of payments for
current and future claims it has paid or will pay under the policies,
increasing over time as it pays claims under relevant policies.
MBIA
The Corporation, Countrywide and other Countrywide entities are
named as defendants in two actions filed by MBIA Insurance
Corporation (MBIA). The first action, MBIA Insurance Corporation,
Inc. v. Countrywide Home Loans, et al., filed on September 30, 2008
is pending in New York Supreme Court, New York County. Damages
sought by MBIA include the amount of payments for current and
future claims it has paid or will pay under the policies, increasing
over time as it pays claims under relevant policies.
On May 25, 2011, MBIA moved for partial summary judgment,
seeking rulings that: (i) MBIA does not have to show that
Countrywide’s alleged fraud and breaches of contract proximately
caused MBIA’s losses; and (ii) the term “materially and adversely
affects” in the transaction documents does not limit the
repurchase remedy to defaulted loans, or require MBIA to show
that Countrywide’s breaches of the representations and warranties