Bank of America 2015 Annual Report Download - page 203

Bank of America 2015 201
of the Sherman Act and seek compensatory and treble damages,
as well as declaratory and injunctive relief.
On January 28, 2015, the court denied defendants’ motion to
dismiss. In April 2015, the Corporation and BANA agreed to settle
the class action for $180 million. On September 21, 2015,
plaintiffs filed a second consolidated amended complaint, in which
they named additional defendants, including MLPF&S, added
claims for violations of the CEA, and expanded the scope of the
FX transactions purportedly affected by the alleged conspiracy to
include additional over-the-counter FX transactions and FX
transactions on an exchange. On October 1, 2015, the Corporation,
BANA and MLPF&S executed a final settlement agreement, which
included the previously-referenced $180 million settlement for
persons who transacted in FX over-the-counter and a $7.5 million
settlement for persons who transacted in FX on an exchange only.
The settlement is subject to final court approval.
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 represent 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 June 15, 2015, the U.S. Court of Appeals for the Second
Circuit affirmed the district court’s denial of plaintiff’s motion to
amend. On June 29, 2015, plaintiff filed a petition for rehearing
en banc.
On July 31, 2015, the U.S. Court of Appeals denied plaintiff’s
petition for rehearing en banc. On January 11, 2016, the U.S.
Supreme Court denied plaintiff’s petition for a writ of certiorari,
thereby exhausting plaintiff’s appellate options.
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 their affiliates
may have claims for or may be subject to claims for contractual
indemnification in connection with their various roles in regard to
MBS. Certain of these entities have received claims for
indemnification related to MBS securities actions, including claims
from underwriters of MBS that were issued by these entities, and
from underwriters and issuers of MBS backed by loans originated
by these entities.
FHLB Seattle Litigation
On December 23, 2009, the Federal Home Loan Bank of Seattle
(FHLB Seattle) filed four separate complaints, each against
different defendants, including the Corporation and its affiliates,
Countrywide and its affiliates, and MLPF&S and its affiliates, as
well as certain other defendants, in the Superior Court of
Washington for King County entitled Federal Home Loan Bank of
Seattle v. UBS Securities LLC, et al.; Federal Home Loan Bank of
Seattle v. Countrywide Securities Corp., et al.; Federal Home Loan
Bank of Seattle v. Banc of America Securities LLC, et al. and Federal
Home Loan Bank of Seattle v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., et al. FHLB Seattle asserts certain MBS Claims pertaining to
its alleged purchases in 12 MBS offerings between 2005 and
2007. In those complaints, FHLB Seattle seeks, among other
relief, unspecified damages under the Securities Act of
Washington. On July 19, 2011, the Court denied the defendants’
motions to dismiss the complaints. In November 2015, the Court
denied motions for summary judgment filed by all defendants that
addressed certain common issues, including the method for
calculating pre-judgment interest in the event an award of interest
is ultimately made under the Securities Act of Washington. Motions
for summary judgment filed by defendants addressing issues
specific to each complaint and defendant, as well as additional
issues common to all defendants, remain pending.
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