Bank of America 2009 Annual Report Download - page 183

related case to In re Merrill Lynch & Co., Inc. Securities, Derivative, and
ERISA Litigation. On April 21, 2009, the parties reached an agreement in
principle to settle the Louisiana Sheriff’s matter in an amount that is not
material to the Corporation’s Consolidated Financial Statements and
dismiss all claims with prejudice. On November 30, 2009, the U.S. Dis-
trict Court for the Southern District of New York granted final approval of
the settlement.
Connecticut Carpenters Pension Fund, et al. v. Merrill Lynch & Co.,
Inc., et al.; Iron Workers Local No. 25 Pension Fund v. Credit-Based
Asset Servicing and Securitization LLC, et al.; Public Employees’ Ret.
System of Mississippi v. Merrill Lynch & Co. Inc. et al.; Wyoming State
Treasurer v. Merrill Lynch & Co. Inc.
Beginning in December 2008, Merrill Lynch affiliated entities, including
Merrill Lynch Mortgage Investors, Inc., and officers and directors of Merrill
Lynch Mortgage Investors, Inc., and others were named in four putative
class actions arising out of the underwriting and sale of more than $55
billion of MBS. The complaints alleged, among other things, that the rele-
vant registration statements and accompanying prospectuses or pro-
spectus supplements misrepresented or omitted material facts regarding
the underwriting standards used to originate the mortgages in the mort-
gage pools underlying the MBS, the process by which the mortgage pools
were acquired, and the appraisals of the homes secured by the mort-
gages. Plaintiffs seek to recover alleged losses in the market value of the
MBS allegedly caused by the performance of the underlying mortgages or
to rescind their purchases of the MBS. These cases were consolidated
under the caption Public Employees’ Ret. System of Mississippi v. Merrill
Lynch & Co. Inc. and, on May 20, 2009, a consolidated amended com-
plaint was filed. On June 17, 2009, all defendants filed a motion to dis-
miss the consolidated amended complaint.
Federal Home Loan Bank of Seattle Litigation
On December 23, 2009, FHLB Seattle filed a complaint, entitled Federal
Home Loan Bank of Seattle v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
et al., in the Superior Court of Washington for King County against
MLPF&S, Merrill Lynch Mortgage Investors, Inc., and Merrill Lynch Mort-
gage Capital, Inc. The complaint alleges violations of the Securities Act of
Washington in connection with the offering of various MBS and asserts,
among other things, misstatements and omissions concerning the credit
quality of the mortgage loans underlying the MBS and the loan origination
practices associated with those loans. The complaint seeks rescission,
interest, costs and attorneys’ fees.
Merrill Lynch & Co., Inc. is cooperating with the SEC and other gov-
ernmental authorities investigating subprime mortgage-related activities.
Montgomery
On January 19, 2010, a putative class action entitled Montgomery v.
Bank of America, et al., was filed in the U.S. District Court for the South-
ern District of New York against the Corporation, BAS, MLPF&S and a
number of its current and former officers and directors on behalf of all
persons who acquired certain preferred stock offered pursuant to a shelf
registration statement dated May 5, 2006, specifically two offerings
dated January 24, 2008 and another dated May 20, 2008. The Mont-
gomery 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; and (iii) misrepresented the adequacy of the
Corporation’s internal controls, and the Corporation’s capital base in light
of the alleged impairment of its assets.
Municipal Derivatives Matters
The Antitrust Division of the DOJ, the SEC, and the Internal Revenue Serv-
ice (IRS) are investigating possible anticompetitive bidding practices in
the municipal derivatives industry involving various parties, including
BANA, dating back to the early 1990s. The activities at issue in these
industry-wide government investigations concern the bidding process for
municipal derivatives that are offered to states, municipalities and other
issuers of tax-exempt bonds. The Corporation has cooperated, and con-
tinues to cooperate, with the DOJ, the SEC and the IRS. On January 11,
2007, the Corporation entered into a Corporate Conditional Leniency
Letter (the Letter) with DOJ. Under the Letter and subject to the Corpo-
ration’s continuing cooperation, the DOJ will not bring any criminal anti-
trust prosecution against the Corporation in connection with the matters
that the Corporation reported to DOJ. Subject to satisfying the DOJ and
the court presiding over any civil litigation of the Corporation’s coopera-
tion, the Corporation is eligible for: (i) a limit on liability to single, rather
than treble, damages in certain types of related civil antitrust actions; and
(ii) relief from joint and several antitrust liability with other civil defend-
ants.
On February 4, 2008, BANA received a Wells notice advising that the
SEC staff is considering recommending that the SEC bring a civil
injunctive action and/or an administrative proceeding against BANA “in
connection with the bidding of various financial instruments associated
with municipal securities.” An SEC action or proceeding could seek a
permanent injunction, disgorgement plus prejudgment interest, civil penal-
ties and other remedial relief. Merrill Lynch is also being investigated by
the SEC and the DOJ concerning bidding practices in the municipal
derivatives industry.
Beginning in March 2008, the Corporation, BANA and other financial
institutions, including Merrill Lynch, have been named as defendants in
complaints filed in federal courts in the District of Columbia, New York
and elsewhere. Plaintiffs in those cases purport to represent classes of
government and private entities that purchased municipal derivatives
from defendants. The complaints allege that defendants conspired to
allocate customers and fix or stabilize the prices of certain municipal
derivatives from 1992 through the present. The plaintiffs’ complaints
seek unspecified damages, including treble damages. These lawsuits
were consolidated for pre-trial proceedings in the In re Municipal
Derivatives Antitrust Litigation, pending in the U.S. District Court for the
Southern District of New York. BANA, BAS, Merrill Lynch and other finan-
cial institutions have also been named in several related individual suits
originally filed in California state courts on behalf of a number of cities
and counties in California and asserting state law causes of action. All
of these cases have been removed to the U.S. District Court for the
Southern District of New York and are now part of In re Municipal
Derivatives Antitrust Litigation. The amended complaints filed in these
actions continue to allege a substantially similar conspiracy and now
assert violations of the Sherman Act and California’s Cartwright Act. Six
individual actions have been filed in the U.S. District Courts for the East-
ern and Central Districts of California. All of these cases allege a sub-
stantially similar conspiracy and violations of the Sherman and Cartwright
Acts, and seek unspecified damages, and in some cases, treble dam-
ages. All six cases are in the process of being transferred for con-
solidation in the In re Municipal Derivatives Antitrust Litigation.
On September 3, 2009, BANA was sued by the West Virginia Attorney
General on behalf of the State of West Virginia for the same conspiracy
alleged in the In re Municipal Derivatives Antitrust Litigation. The suit was
originally filed in the Circuit Court of Mason County, West Virginia. BANA
removed the case to the U.S. District Court for the Southern District of
West Virginia (Huntington Division). The State’s motion to remand is fully
briefed. Upon removal, BANA noticed the State’s case as a tag-along
action subject to transfer by the MDL Panel. The MDL Panel has issued a
Conditional Transfer Order transferring the action to the U.S. District
Court for the Southern District of New York. The State objected and filed
a motion to vacate. That motion was denied on February 2, 2010.
Beginning in April 2008, the Corporation and BANA received sub-
poenas, interrogatories and/or civil investigative demands from a number
of state attorneys general requesting documents and information regard-
ing municipal derivatives transactions from 1992 through the present.
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