PNC Bank 2014 Annual Report Download - page 228

need funeral contract, a customer pays an amount up front in
exchange for payment of funeral expenses following the
customer’s death. In a number of states, including Missouri,
pre-need funeral contract sellers are required to deposit a
portion of the proceeds of the sale of pre-need funeral
contracts in a trust account.
The lawsuit was filed in August 2009 by the Special Deputy
Receiver for three insolvent affiliated companies, National
Prearranged Services, Inc. a seller of pre-need funeral
contracts (NPS), Lincoln Memorial Life Insurance Company
(Lincoln), and Memorial Service Life Insurance Company
(Memorial). Seven individual state life and health insurance
guaranty associations, who claim they are liable under state
law for payment of certain benefits under life insurance
policies sold by Lincoln and Memorial, and the National
Organization of Life & Health Guaranty Associations have
also joined the action as plaintiffs. In addition to National City
Bank and PNC Bank (added following filing of the lawsuit as
successor-in-interest to National City Bank), other defendants
included members of the Cassity family, who controlled NPS,
Lincoln, and Memorial; officers and directors of NPS,
Lincoln, and Memorial; auditors and attorneys for NPS,
Lincoln, and Memorial; the trustees of each of the trusts that
held pre-need funeral contract assets; and the investment
advisor to the Pre-need Trusts. NPS retained several banks to
act as trustees for the trusts holding NPS pre-need funeral
contract assets (the “NPS Trusts”), with Allegiant Bank acting
as one of these trustees with respect to seven Missouri NPS
Trusts. All of the other defendants have settled with the
plaintiffs, are otherwise no longer a party to the lawsuit, or are
insolvent.
In their Third Amended Complaint, filed in 2012 following
the granting by the court in part of motions to dismiss made
by National City Bank and the other NPS Trust trustees, the
plaintiffs allege that Allegiant Bank breached its fiduciary
duties and acted negligently as the trustee for the Missouri
NPS Trusts. In part as a result of these breaches, the plaintiffs
allege, members of the Cassity family, acting in concert with
other defendants, were able to improperly remove millions of
dollars from the NPS Trusts, which in turn caused NPS,
Lincoln, and Memorial to become insolvent. The complaint
alleges $600 million in present and future losses to the
plaintiffs due to the insolvency of NPS, Lincoln, and
Memorial. The lawsuit seeks, among other things, unspecified
actual and punitive damages, various equitable remedies
including restitution, attorneys’ fees, costs of suit and interest.
In July 2013, five of the six defendants in a parallel federal
criminal action, including two members of the Cassity family,
entered into plea agreements with the United States to resolve
criminal charges arising out of their conduct at NPS, Lincoln
and Memorial. In August 2013, after a jury trial, the sixth
defendant, the investment advisor to the NPS Trusts, was
convicted on all criminal counts against him. The criminal
charges against the defendants alleged, among other thing, a
scheme to defraud Allegiant Bank and the other trustees of the
NPS Trusts.
In May 2014, the court granted the plaintiffs’ motion to
disallow National City Bank’s affirmative defense relating to
the plaintiffs’ alleged failure to mitigate damages. In July
2014, National City Bank’s motion for reconsideration was
denied. In September 2014, the plaintiffs filed a motion
seeking leave to amend their complaint to reassert aiding and
abetting claims, previously dismissed by the court in 2012.
The court denied this motion in December 2014. Also in
December 2014, the court granted in part and denied in part
National City Bank’s motion for summary judgment.
A jury trial in this case began in February 2015.
Other Regulatory and Governmental Inquiries
PNC is the subject of investigations, audits and other forms of
regulatory and governmental inquiry covering a broad range of
issues in our banking, securities and other financial services
businesses, in some cases as part of reviews of specified
activities at multiple industry participants. Over the last few
years, we have experienced an increase in regulatory and
governmental investigations, audits and other inquiries. Areas
of current regulatory or governmental inquiry with respect to
PNC include consumer protection, fair lending, mortgage
origination and servicing, mortgage and non mortgage-related
insurance and reinsurance, municipal finance activities,
conduct by broker-dealers, automobile lending practices, and
participation in government insurance or guarantee programs,
some of which are described below. These inquiries, including
those described below, may lead to administrative, civil or
criminal proceedings, and possibly result in remedies including
fines, penalties, restitution, or alterations in our business
practices, and in additional expenses and collateral costs.
• One area of significant regulatory and governmental
focus has been mortgage lending and servicing.
Numerous federal and state governmental, legislative
and regulatory authorities are investigating practices in
this area. PNC has received inquiries from, or is the
subject of investigations by, a broad range of
governmental, legislative and regulatory authorities
relating to our activities in this area and is cooperating
with these investigations and inquiries. As a result of
the number and range of authorities conducting the
investigations and inquiries, as well as the nature of
these types of investigations and inquiries, among other
factors, PNC cannot at this time predict the ultimate
overall cost to or effect on PNC from potential
governmental, legislative or regulatory actions arising
out of these investigations and inquiries.
• In April 2011, as a result of a publicly-disclosed
interagency horizontal review of residential
mortgage servicing operations at fourteen
federally regulated mortgage servicers, PNC
entered into a consent order with the Board of
210 The PNC Financial Services Group, Inc. – Form 10-K