Bank of America 2012 Annual Report Download - page 232

230 Bank of America 2012
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 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.
On March 15, 2012, plaintiffs moved to file a second amended
complaint to add additional factual allegations. On March 16,
2012, the district court granted defendants’ motion to dismiss
the first amended complaint and referred the motion to amend to
the magistrate judge. On February 15, 2013, the magistrate judge
issued an opinion and order denying the motion to amend.
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/or 15 of the
Securities Act of 1933, Sections 10(b) and/or 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 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 January 11,
2013, the Corporation preliminarily agreed on a settlement amount
with the National Credit Union Administration (NCUA) to resolve
claims concerning certain MBS offerings that the NCUA had
threatened to bring against the Corporation, Merrill Lynch,
Countrywide and certain of their affiliates. The agreement is
subject to the negotiation and execution of mutually agreeable
settlement documentation and approval by the NCUA board. The
settlement amount would be covered by existing reserves.
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. The district court denied AIG’s motion to remand the case
to state court.
On December 21, 2011, the JPML transferred the Countrywide
MBS claims to the Countrywide RMBS MDL in the Central District
of California. The non-Countrywide MBS claims will be heard in the
U.S. District Court for the Southern District of New York.
On April 24, 2012, the U.S. Court of Appeals for the Second
Circuit granted plaintiffs’ petition for leave to appeal the ruling of
the district court in the Southern District of New York denying
plaintiffs’ motion to remand the case to the New York Supreme
Court. The appeal is pending.
On May 23, 2012, the district court in the Central District of
California dismissed with prejudice plaintiffs’ federal securities
claims and certain of the state law common law claims. On August
31, 2012, AIG filed an amended complaint, which, among other
things, added claims against the Corporation and certain related
entities for constructive fraudulent conveyance and intentional
fraudulent conveyance.
FHFA Litigation
The FHFA, as conservator for FNMA and FHLMC, filed an action on
September 2, 2011 against the Corporation and related entities,
Countrywide and related entities, certain former officers of these
entities, and NB Holdings Corporation in New York Supreme Court,
New York County, entitled Federal Housing Finance Agency v.
Countrywide Financial Corporation, et al. (the FHFA Countrywide
Litigation). FHFA’s complaint asserts certain MBS Claims in
connection with allegations that FNMA and FHLMC purchased MBS
issued by Countrywide-related entities in 86 MBS offerings
between 2005 and 2008. The FHFA seeks among other relief,
rescission of the consideration paid for the securities or
alternatively damages allegedly incurred by FNMA and FHLMC,
including consequential damages. The FHFA also seeks recovery
of punitive damages.
On September 30, 2011, Countrywide removed the FHFA
Countrywide Litigation from New York Supreme Court to the U.S.