Bank of America 2014 Annual Report Download - page 219

Bank of America 2014 217
Montgomery
The Corporation, several current and former officers and directors,
Banc of America Securities LLC (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.
On March 16, 2012, the court granted defendants’ motion to
dismiss the first amended complaint. On December 3, 2013, the
court denied plaintiffs’ motion to file a second amended complaint.
On February 6, 2014, plaintiffs appealed the denial of their motion
to amend to the U.S. Court of Appeals for the Second Circuit.
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 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 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.
The Corporation, Countrywide, Merrill Lynch and/or their
affiliates may have claims for and/or may be subject to claims for
contractual indemnification in connection with their various roles
in regard to MBS.
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).
Federal Home Loan Bank Litigation
On March 15, 2010, the Federal Home Loan Bank of San Francisco
(FHLB San Francisco) filed an action in California Superior Court,
San Francisco County, entitled Federal Home Loan Bank of San
Francisco v. Credit Suisse Securities (USA) LLC, et al. FHLB San
Francisco’s complaint asserts certain MBS Claims against BAS,
Countrywide and several related entities in connection with its
alleged purchase of 51 MBS offerings and one private placement
issued and/or underwritten by those defendants between 2004
and 2007 and seeks rescission and unspecified damages. FHLB
San Francisco dismissed the federal claims with prejudice on
August 11, 2011. On September 8, 2011, the court denied
defendants’ motions to dismiss the state law claims. On December
20, 2013, FHLB San Francisco voluntarily dismissed its negligent
misrepresentation claims with prejudice. On October 15, 2014,
the court denied the parties’ cross-motions for summary judgment
with respect to two Countrywide trusts that were to be part of a
bellwether trial.
The parties have settled the action and other related actions
for $420 million, as well as with respect to certain claims,
additional consideration; all amounts were fully accrued as of
December 31, 2014. Pursuant to the settlement, FHLB San
Francisco has voluntarily dismissed its remaining claims with
prejudice.
Luther Class Action Litigation and Related Actions
Beginning in 2007, a number of pension funds and other investors
filed putative class action lawsuits alleging certain MBS Claims
against Countrywide, several of its affiliates, MLPF&S, the
Corporation, NB Holdings Corporation and certain other
defendants. Those class action lawsuits concerned a total of 429
MBS offerings involving over $350 billion in securities issued by
subsidiaries of Countrywide between 2005 and 2007. The actions,
entitled Luther v. Countrywide Financial Corporation, et al., Maine
State Retirement System v. Countrywide Financial Corporation, et
al., Western Conference of Teamsters Pension Trust Fund v.
Countrywide Financial Corporation, et al., and Putnam Bank v.
Countrywide Financial Corporation, et al., were all assigned to the
Countrywide RMBS MDL court. On December 6, 2013, the court
granted final approval to a settlement of these actions in the
amount of $500 million. Beginning on January 14, 2014, a number
of class members appealed to the U.S. Court of Appeals for the
Ninth Circuit.
Prudential Insurance Litigation
On March 14, 2013, The Prudential Insurance Company of America
and certain of its affiliates (collectively Prudential) filed a complaint
in the U.S. District Court for the District of New Jersey, in a case
entitled Prudential Insurance Company of America, et al. v. Bank of
America, N.A., et al. Prudential has named the Corporation, Merrill