SunTrust 2012 Annual Report Download - page 205

Notes to Consolidated Financial Statements (Continued)
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named as defendants in a separate shareholder derivative action filed in the U.S. District Court for the Northern District of
Georgia, Edward Mannato v. James M. Wells, III, et al. The plaintiffs in both of these lawsuits purport to bring their claims
on behalf of and for the benefit of the Company. Generally, these lawsuits are substantially overlapping and make very broad
allegations of mismanagement of, and misrepresentations about, the Company's exposure to loan losses and the residential
real estate market leading up to and during the recent real estate and credit market crises. In both cases, the plaintiffs assert
causes of action for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Mannato lawsuit arises
out of a shareholder demand made of SunTrust in March 2008 that was the subject of an investigation conducted at the direction
of a committee of independent members of the Company's Board. This committee concluded that no wrongdoing had occurred
and that the interests of the Company's shareholders would not be served by pursuing the claims alleged in the plaintiff's
demand. A new committee conducted a new investigation of the allegations raised in the lawsuit and concluded that no
wrongdoing had occurred and that the interests of the Company's shareholders would not be served by pursuing the claims
alleged in the plaintiff's demand. The Benfield lawsuit arises out of a shareholder demand made of SunTrust in February 2011
that was the subject of an investigation conducted at the direction of the same Board committee, which concluded that these
allegations had no merit. On October 29, 2012, the Court dismissed all claims in the Benfield case. This decision is on appeal.
The Court stayed the Mannato case, initially pending the outcome of a similar case and then upon the death of the plaintiff.
A motion to dismiss is pending in the Mannato case.
Colonial BancGroup Securities Litigation
Beginning in July 2009, STRH, certain other underwriters, The Colonial BancGroup, Inc. (“Colonial BancGroup”) and certain
officers and directors of Colonial BancGroup were named as defendants in a putative class action filed in the U.S. District
Court for the Middle District of Alabama, Northern District entitled In re Colonial BancGroup, Inc. Securities Litigation. The
complaint was brought by purchasers of certain debt and equity securities of Colonial BancGroup and seeks unspecified
damages. Plaintiffs allege violations of Sections 11 and 12 of the Securities Act of 1933 due to allegedly false and misleading
disclosures in the relevant registration statement and prospectus relating to Colonial BancGroup’s goodwill impairment,
mortgage underwriting standards, and credit quality. On August 28, 2009, The Colonial BancGroup filed for bankruptcy. The
defendants’ motion to dismiss was denied in May 2010, but the Court subsequently ordered Plaintiffs to file an amended
complaint. This amended complaint was filed and the defendants filed a motion to dismiss.
Consent Order with the Federal Reserve
On April 13, 2011, SunTrust Banks, Inc., SunTrust Bank, and STM entered into a Consent Order with the Federal Reserve in
which SunTrust Banks, Inc., SunTrust Bank, and STM agreed to strengthen oversight of and improve risk management, internal
audit, and compliance programs concerning the residential mortgage loan servicing, loss mitigation, and foreclosure activities
of STM. Under the terms of the Consent Order, SunTrust Bank and STM agreed, among other things, to: (a) strengthen the
coordination of communications between borrowers and STM concerning ongoing loss mitigation and foreclosure activities;
(b) submit a plan to enhance processes for oversight and management of third party vendors used in connection with residential
mortgage servicing, loss mitigation and foreclosure activities; (c) enhance and strengthen the enterprise-wide compliance
program with respect to oversight of residential mortgage loan servicing, loss mitigation and foreclosure activities; (d) ensure
appropriate oversight of STM's activities with respect to Mortgage Electronic Registration System; (e) review and remediate,
if necessary, STM's management information systems for its residential mortgage loan servicing, loss mitigation, and
foreclosure activities; (f) improve the training of STM officers and staff concerning applicable law, supervisory guidance and
internal procedures concerning residential mortgage loan servicing, loss mitigation and foreclosure activities, including the
single point of contact for foreclosure and loss mitigation; (g) retain an independent consultant to conduct a comprehensive
assessment of STM's risks, including, but not limited to, operational, compliance, transaction, legal, and reputational risks
particularly in the areas of residential mortgage loan servicing, loss mitigation and foreclosure; (h) enhance and strengthen
the enterprise-wide risk management program with respect to oversight of residential mortgage loan servicing, loss mitigation
and foreclosure activities; and (i) enhance and strengthen the internal audit program with respect to residential loan servicing,
loss mitigation and foreclosure activities. The comprehensive third party risk assessment was completed in August 2011, and
the Company continues implementation of recommended enhancements. All of the action plans designed to complete the
above enhancements were accepted by the Federal Reserve and are currently in implementation. During the fourth quarter of
2012, the Company engaged an independent third party consultant approved by the Federal Reserve to prepare a validation
report with respect to compliance with the aspects of the Consent Order referenced above. The Company currently anticipates
that the independent third party consultant will complete its review and report to the Federal Reserve in the first half of 2013.
The Company also completed an internal review of STM's residential foreclosure processes, and as a result of the review,
steps have been taken and continue to be taken, to improve upon those processes.
Under the terms of the Consent Order, SunTrust Bank and STM also retained an independent foreclosure consultant approved
by the Federal Reserve to conduct a review of residential foreclosure actions pending at any time during the period from
January 1, 2009 through December 31, 2010, for loans serviced by STM, to identify any errors, misrepresentations, or
deficiencies, determine whether any instances so identified resulted in financial injury, and prepare a written report detailing
the findings. Through the fourth quarter of 2012, the Company continued to incur the costs associated with the Consent Order-