Bank of America 2014 Annual Report Download - page 221

Bank of America 2014 219
CHL and a Countrywide business division known as Full Spectrum
Lending. On October 24, 2012, the DoJ filed a complaint-in-
intervention to join the matter, adding BANA, Countrywide and CHL
as defendants. The action is entitled United States of America, ex
rel, Edward O’Donnell, appearing Qui Tam v. Bank of America Corp.,
et al., and was filed in the U.S. District Court for the Southern
District of New York. The complaint-in-intervention asserted certain
fraud claims in connection with the sale of loans to FNMA and
FHLMC by Full Spectrum Lending and by the Corporation and BANA.
On January 11, 2013, the government filed an amended complaint
which added Countrywide Bank, FSB (CFSB) and a former officer
of the Corporation as defendants. The court dismissed False
Claims Act counts on May 8, 2013. On September 6, 2013, the
government filed a second amended complaint alleging claims
under FIRREA concerning allegedly fraudulent loan sales to the
GSEs between August 2007 and May 2008. On September 24,
2013, the government dismissed the Corporation as a defendant.
Following a trial, on October 23, 2013, a verdict of liability was
returned against CHL, CFSB and BANA. On July 30, 2014, the court
imposed a civil penalty of $1.3 billion on BANA. On February 3,
2015, the court denied the Corporation’s motions for judgment as
a matter of law, or in the alternative, a new trial. The Corporation
will appeal the verdict and judgment.
Pennsylvania Public School Employees’ Retirement
System
The Corporation and several current and former officers were
named as defendants in a putative class action filed in the U.S.
District Court for the Southern District of New York entitled
Pennsylvania Public School Employees’ Retirement System v. Bank
of America, et al.
Following the filing of a complaint on February 2, 2011, plaintiff
subsequently filed an amended complaint on September 23, 2011
in which plaintiff sought to sue on behalf of all persons who
acquired the Corporation’s common stock between February 27,
2009 and October 19, 2010 and “Common Equivalent Securities”
sold in a December 2009 offering. The amended complaint
asserted claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Sections 11 and 15 of the Securities
Act of 1933, and alleged that the Corporation’s public statements:
(i) concealed problems in the Corporation’s mortgage servicing
business resulting from the widespread use of the Mortgage
Electronic Recording System; (ii) failed to disclose the
Corporation’s exposure to mortgage repurchase claims; (iii)
misrepresented the adequacy of internal controls; and (iv) violated
certain Generally Accepted Accounting Principles. The amended
complaint sought unspecified damages.
On July 11, 2012, the court granted in part and denied in part
defendants’ motions to dismiss the amended complaint. All claims
under the Securities Act were dismissed against all defendants,
with prejudice. The motion to dismiss the claim against the
Corporation under Section 10(b) of the Exchange Act was denied.
All claims under the Exchange Act against the officers were
dismissed, with leave to replead. Defendants moved to dismiss a
second amended complaint in which plaintiff sought to replead
claims against certain current and former officers under Sections
10(b) and 20(a). On April 17, 2013, the court granted in part and
denied in part the motion to dismiss, sustaining Sections 10(b)
and 20(a) claims against the current and former officers.
Policemen’s Annuity Litigation
On April 11, 2012, the Policemen’s Annuity & Benefit Fund of the
City of Chicago, on its own behalf and on behalf of a proposed
class of purchasers of 41 RMBS trusts collateralized mostly by
Washington Mutual-originated (WaMu) mortgages, filed a proposed
class action complaint against BANA and other unrelated parties
in the U.S. District Court for the Southern District of New York,
entitled Policemen’s Annuity and Benefit Fund of the City of Chicago
v. Bank of America, N.A. and U.S. Bank National Association. BANA
and U.S. Bank are named as defendants in their capacities as
trustees, with BANA (formerly LaSalle Bank National Association)
having served as the original trustee and U.S. Bank having replaced
BANA as trustee. Plaintiff asserted claims under the federal Trust
Indenture Act as well as state common law claims. Plaintiff alleged
that, in light of the performance of the RMBS at issue, and in the
wake of publicly-available information about the quality of loans
originated by WaMu, the trustees were required to take certain
steps to protect plaintiff’s interest in the value of the securities,
and that plaintiff was damaged by defendants’ failures to notify it
of deficiencies in the loans and of defaults under the relevant
agreements, to ensure that the underlying mortgages could
properly be foreclosed, and to enforce remedies available for loans
that contained breaches of representations and warranties.
Plaintiff sought unspecified compensatory damages and/or
equitable relief, and costs and expenses. The court dismissed
some of the common law claims, but allowed the Trust Indenture
Act claim and a claim for breach of contract to proceed. After the
filing of two amended complaints and the consolidation of the case
with a related matter filed on August 23, 2013, entitled Vermont
Pension Investment Committee and the Washington State
Investment Board v. Bank of America, N.A. and U.S. Bank National
Association, 10 named plaintiffs filed a third amended complaint
on October 31, 2013, on behalf of two proposed classes of
purchasers of 35 trusts collateralized mostly by WaMu-originated
mortgages (later reduced to 34 trusts).
On June 5, 2014, the parties informed the court that they had
reached an agreement in principle to settle the case for an amount
not material to the Corporation’s results of operations, subject to
approval of plaintiffs’ boards. The settlement remains subject to
final court approval and various conditions. On November 10,
2014, the court preliminarily approved the proposed settlement,
and scheduled a final approval hearing for March 12, 2015.
Takefuji Litigation
In April 2010, Takefuji Corporation (Takefuji) filed a claim against
Merrill Lynch International and Merrill Lynch Japan Securities
(MLJS) in Tokyo District Court. The claim concerns Takefuji’s
purchase in 2007 of credit-linked notes structured and sold by
defendants that resulted in a loss to Takefuji of approximately
JPY29.0 billion (approximately $270 million) following an event of
default. Takefuji alleges that defendants failed to meet certain
disclosure obligations concerning the notes.
On July 19, 2013, the Tokyo District Court issued a judgment
in defendants’ favor, a decision that Takefuji subsequently
appealed to the Tokyo High Court. On August 27, 2014, the Tokyo
High Court vacated the decision of the District Court and issued
a judgment awarding Takefuji JPY14.5 billion (approximately $135
million) in damages, plus interest at a rate of five percent from
March 18, 2008. On September 10, 2014, defendants filed an
appeal with the Japanese Supreme Court.