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RICHARD DELMAN, derivatively on behalf of the Nominal Defendant,
Civil Action No.: Plaintiff, VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
CHARLES K. GIFFORD, D. PAUL JONES, JR., FRANK P. BRAMBLE, SR., MONICA C. LOZANO, THOMAS J. MAY, VIRGIS W. COLBERT, CHARLES O. HOLLIDAY, BRIAN T. MOYNIHAN, DONALD E. POWELL, MUKESH D. AMBANI, SUSAN S. BIES, CHARLES O. ROSSOTTI and CHARLES H. NOSKI, Defendants, --and--
JURY TRIAL DEMANDED
BANK OF AMERICA CORP., a Delaware corporation, Nominal Defendant.
Plaintiff Richard Delman ("Plaintiff') brings this action derivatively on behalf of nominal against certain directors
defendant Bank of America Corporation ("BAC" or the "Company") and officers of BAC named herein (the "BAC Defendants").
Plaintiff bases his allegations on
actual knowledge as to his own acts and on information and belief as to all other allegations, after due investigation by counsel.
NATURE AND SUMMARY OF THE ACTION
This action arises from Defendants' wrongdoing subsequent to the acquisition by Financial Corp. ("CWC"). Prior to the CWC acquisition, as publicly
BAC of Countrywide
disclosed by its then President and Chief Executive Officer, Kenneth Lewis, BAC performed one of the most thorough due diligence investigation the Company had ever done. 2. Thus, at the time the CWC acquisition closed in July 2008, BAC management and of the potential liabilities which might arise in the future. and the Board
its Board had a full understanding
Rather than coming clean, or resolving the CWC issues, BAC management adopted a wrongful and obstinate investigating the Company's policy: refusing to cooperate with foreclosure practices;
government regulators reimbursement on
government guaranteed mortgages which were likely violative of the False Claims Act; failing to comply with an Arizona modifications; Consent Decree requiring that BAC fairly entertain mortgage of foreclosure documents; agreeing to ("Robo
engaging in massive "Robo-Signing"
cease Robo-Signing, but then resuming Robo-Signing despite its questionable legality. Signing" is the bulk execution accuracy and adequacy). 3. of foreclosure-related documents
without actual review for
Despite the BAC Board having detailed knowledge of the extensive due diligence
behind the CWC acquisition, BAC is now facing very substantial liability arising out or related to: (a) BAC's stonewalling of the investigation of the Office of the Inspector General ("OIG") of the Department of Housing and Urban Development ("HUD") investigating BAC's Robo-
Signing of mortgage foreclosure documents for fiscal 2009 and 2010, and possible violations of the False Claims Act by seeking government reimbursement on such foreclosures; (b) Potential claims by the 50 state taskforce investigating wrongdoing in the mortgage foreclosure market
(the "State Mortgage Foreclosure Task Force"); (c) a securities class action against BAC; (d) An enforcement action by Arizona accusing BAC of repeatedly violating a previously executed Consent Judgment whereby BAC had agreed to provide qualified home owners with mortgage modifications; for engaging in a pattern of consumer fraud by misrepresenting to homeowners that they were not eligible for the modification program; and for foreclosing on such eligible homeowners; (e) an enforcement action by Nevada accusing BAC of repeated violating the Nevada consumer protection act for engaging in a pattern of consumer fraud by misrepresenting to homeowners that they were not eligible for the mortgage modification program, and for foreclosing on such eligible homeowners; (f) a separate investigation by the New York Attorney General into BAC's mortgage foreclosure conduct; and (g) conduct by BAC constituting the intimidation of its employees for disclosing major wrongdoing at the Company. As a result BAC is now facing inter alia very substantial fines and financial liabilities such that these material adverse developments may threaten its required capital ratios and its liquidity. Indeed, on August 25,2011 BAC was forced to accept a $5 billion preferred stock investment from investor Warren Buffett, on highly disadvantageous terms. 4. The BAC Board knew that BAC was legally obligated to proceed with legacy
mortgage foreclosures in a prudent lawful manner. This did not occur. Rather, the Board wholly failed to rein in management. On the contrary, it let management engage in blatantly unlawful excesses as outlined above and as discussed in detail below. The BAC Board is composed of banking, finance and business professionals who fully understand the issues facing BAC, and who fully appreciate why its response need to be lawful and transparent. Nonetheless, the Board ignored numerous clear-as-day reports of irregularity bordering on fraud, and allowed the Company to get drawn in to additional illegality, materially raising BAC's potential liability. As
Thus.S. pursuant to federal statutory law and Supreme Court authority. II. Prior to Congress having enacted an express provision for contribution under Section 21D of the Exchange Act. 286 (1993).S. Employers Insurance of Wausau. This Court also has subject matter jurisdiction over the pendent state law claims asserted herein pursuant to 28 U. JURISDICTION AND VENUE This Court has jurisdiction over this action pursuant to 28 U. this Court has original federal question jurisdiction over the Federal contribution claim alleged herein. Peeler & Garrnett v. which governs the application of any private right of action for contribution asserted pursuant to the Exchange Act. and Section 21D of the Private Securities Litigation Reform Act. as here.a result.S. pursuant to which there is a private right of action for contribution. S.C.S. This Court also has jurisdiction over all claims asserted herein pursuant to 28 U.C. 15 U. 5.C. See Musick.C 1331 (federal question jurisdiction) insofar as this action arises under both Section 1O(b) of the Securities Exchange Act of 1934 (the "Exchange Act"). 1367 (supplemental jurisdiction). 508 U. 6. 78u-4. the BAC Board breached its fiduciary duty and should be held liable to BAC for the harm it has caused.C.000 exclusive of interests and costs. that they form part of the same case or controversy. 15 U. since this statute provides that the district court has supplemental jurisdiction over all other claims where. § 1332 in that complete diversity exists between Plaintiff and each of the Defendants and the amount in controversy exceeds $75.S. 78j(b). the United States Supreme Court recognized that a federal cause of action existed for contribution pursuant to Section 1O(b) of the Exchange Act and Rule 10b-5. they are so related to claims in the action within the original jurisdiction of the Court. 4 .
BAC has more than 10 billion shares of common stock outstanding. THE PARTIES Plaintiff Plaintiff Richard Delman is a shareholder of BAC and has been so continuously since at least July 21. Nominal Defendant Nominal defendant BAC is one of the world's largest financial institutions. with its principal place of business at 100 North Tryon Street. and because acts and offenses pertinent to the causes of action stated herein were committed in the State of Delaware. Plaintiff is a citizen of New York. BAC is incorporated in Delaware. small and middle market businesses and large corporations with a full range of banking.7. Venue is proper in this judicial district pursuant to 28 U. Charlotte. investing. in part. §§1391 because. and is accordingly a citizen of Delaware and North Carolina. 2008. BAC is a corporation organized and existing under the laws of the State of Delaware. 10. BAC has a Board consisting of 12 members. A. or has sufficient minimum contacts with this District as to render the exercise of jurisdiction by this Court permissible under traditional notions of fair play and substantial justice. North Carolina. and other financial and risk-management products and services.C. The Court has personal jurisdiction over each Defendant because each either is a corporation that conducts business in and maintains operations in this District or is an individual who either is present in this District for jurisdictional purposes. This action is not a collusive one designed to confer jurisdiction on a court of the United States which it would not otherwise have. 11. 8. III. The 5 . serving individual consumers. asset management.S. B. 9.
Credit and Enterprise Risk Committees. 3. He is a member of the Executive Committee. when BAC acquired FleetBoston. makes clear. has been a Director since June 2009. 12.Board has allocated much of its risk oversight responsibilities to the Audit. and was with that Bank from 1978 through its acquisition by Spanish bank BBVA in 2007. Gifford ("Gifford") has been a member of the Board since 2004. Under his stewardship. 2011. He was a member of the Board of Directors of the Federal Reserve Bank of Atlanta from 1994 to 2000. He is a member of the Executive and Credit Committees of the Board and was the Chairman of the Board until replaced by Lewis. c. The BAC Director Defendants Defendant Charles K. Jones began his career in 1967 with the Birmingham law finn Balch & Bingham. Gifford's banking career with our company and one of our predecessor companies. p. brings in-depth knowledge of the financial services industry and significant financial expertise relevant to all activities of our company. Jr. FleetBoston Financial Corporation. Defendant Gifford is a citizen of North Carolina. of which Gifford was CEO. He served as chairman and chief executive officer of that Alabama-based banking company from 1991 through 2007. Defendant Jones is a citizen of 6 . He is a member of the Audit and Corporate Governance Committees. Inc. Defendant Gifford is well experienced in the banking business: Mr. Defendant Gifford serves as both a trustee of NSTAR (an energy utility company) and a member of the Board of Directors of CBS Corporation. Gifford transformed the strategic direction of a regional bank during a recessionary period to create one of the largest financial services companies in New England. As the BAC Proxy Statement dated March 30. Mr. He is currently Of Counsel to that finn and a member of its Financial Institutions Group. Paul Jones. Defendant D. 13. His historical perspective and managerial and leadership experience through past economic cycles provide valuable insight on the issues facing our company's businesses. He is the former chairman and chief executive officer of Compass Bancshares.
As the BAC Proxy Statement dated March 30. Lozano ("Lozano") has been a member of the Board since She is Chief Executive Officer of ImpreMedia.S. 2006. Bramble. Jones practiced as a financial institutions and regulatory attorney and was involved in the formulation of legislative policy for the banking industry as a Director of the Federal Reserve Bank of Atlanta and as a participant in several banking industry groups.S. Inc. audit and financial reporting and risk management. makes clear. a subsidiary of 7 . LLC. Bramble brings broad ranging financial services expertise as well as historical insight to our Board. 4. subsidiaries of Allied Irish Banks. His legal background and his work with the Federal Reserve Bank of Atlanta has given him a professional perspective and in-depth experience with the complex laws and regulations applicable to our company and to our businesses. makes clear. Mr. He was a director from April 1994 to May 2002 and Chairman from December 1999 to May 2002 of Allfirst Financial. As the BAC Proxy Statement dated March 30. Defendant Monica C. He was an advisor to the Executive Committee from April 2005 to December 2005 and Vice Chairman from July 2002 to April 2005 of MBNA Corporation. and Senior Vice President from January 2004 to May 2010.Alabama. 14. acquired in 1993). and MNC Financial. Jones has government and regulatory experience as well as experience leading a large bank holding company through growth and acquisition. wholly owned U. and Allfirst Bank. 2011. 4. Defendant Jones is well experienced in the banking business: Mr.l. She is Publisher and Chief Executive Officer of La Opinion. Defendant Bramble is a citizen of Delaware. the largest Hispanic news and information company in the U. acquired in 2006. and a major regional bank. since May 2010. He is a member of the Enterprise Risk Committee. Sr.S.. Defendant Bramble is well experienced in the banking business: Mr. p.c. 2011. p. sales and marketing of consumers. when BAC acquired MBNA. including credit cycles. 15. he has dealt with a wide range of issues of importance to our company. ("Bramble") has been a member of the Board since 2006. p. Defendant Frank P. As a former executive officer of one of the largest credit card issuers in the U. having held leadership positions at two financial service companies acquired by our company (MBNA Corporation.
May ("May") has been a member of the Board since 2004. 4. 2011. risk management and financial reporting. which give 8 . She is a member of the Credit. Defendant May is a citizen of As the BAC Proxy Statement dated March 30. societal and economic issues relevant to our company. Defendant Lozano is well experienced in complex financial issues and risk management: Ms. Her public company board service for The Walt Disney Company and her roles with the University of California and the University of Southern California give her experience with the issues our company faces. Mr. which give him a unique insight into the issues facing our company's businesses today. makes clear. p. Lozano is the Chief Executive Officer of the largest Hispanic news and information company in the U. Corporate Governance and Executive Committees. In addition. 16. Chief Executive Officer and President and the former Chief Financial Officer and Chief Operating Officer of NSTAR. Defendant May serves as both a trustee of NSTAR and a member of the Board of Directors of CBS Corporation. marketing and strategic planning. as a Certified Public Accountant. Defendant May is well experienced in managing complex business and accounting issues: As Chairman. In this role she has dealt with a wide range of issues such as operations management. He is the Chair of the Audit Committee of the Board. when BAC acquired FleetBoston.ImpreMedia. She was President and Chief Operating Officer of Lozano Enterprises from 2000 to 2004. such as governance. makes clear. She is a member of the Board of Regents of the University of California since 2001 and Trustee of the University of Southern California since 1991. May has experience with operations. 5. since January 2004. May brings strong accounting and financial skills. 2011. He is a member of the Corporate Governance and Enterprise Risk Committees. international growth and business development. p. As the BAC Proxy Statement dated March 30. Mr. strategic planning and corporate governance matters. She is a member of President Obama's Economic Recovery Advisory Board since February 2009. risk management. Massachusetts. a regulated investorowned electric and gas utility. Defendant Thomas J. Defendant Lozano is a citizen of California. He is the current Chairman and CEO of NSTAR.S. Her experience as a member of President Obama's Economic Recovery Advisory Board also gives her valuable perspective on important public policy.
a beverage manufacturing company. since his a Senior Advisor to MillerCoors retirement from that company in 2006. logistics management.. Deere & Company. including risk management and corporate governance issues. Jr. Holliday. p. 3. Defendant Charles O. and Chief Executive Officer of DuPont de Nemours and Company and is currently a Director of CH2M HILL Companies. 18.. Inc. Decker. is Chairman of the BAC Board and has been a He was previously Chairman Director since September 2009. He is Company. makes clear. Inc. p. Inc. Defendant Virgis W. Through his service on other public company boards. Colbert has been a BAC Director since January 2009. He is a member of the Compensation and Benefits. The Manitowoc He has also been a Director Stanley Black & Company. As the BAC Proxy Statement dated March 30. Corporate Governance and Credit Committees.. Defendant Colbert is well experienced in complex business issues and risk management: Mr. he has dealt with a broad array of issues. and Chairman since April 2010. 2011.. He was Executive Vice President of Worldwide of MillerCoors Operations from 1997 to 2005 for Miller Brewing Company. and Merrill Lynch & Co.him a professional perspective operational risk management. a predecessor Company. Inc. on financial reporting and enterprise and 17. He brings significant expertise in domestic and international operations. Sara Lee Corporation. change management and strategic planning. of Lorillard. where he served in a variety of key leadership positions. Defendant Holliday is well experienced in complex business issues and risk management: 9 . 4. 2011. As the BAC Proxy Statement dated March 30. makes clear. Defendant Holliday is a citizen of Delaware. Colbert has many years of experience in the management and oversight of international businesses through his professional service with MillerCoors Company. Ltd. He is the Chairman of the Executive Committee. Defendant Colbert is a citizen of Wisconsin. Royal Dutch Shell pic (the Netherlands).
As the BAC Proxy Statement dated March 30. he led our company in its acquisition and integration of Merrill Lynch & Co. Consumer and Small Business Banking since January 2010. Inc. including wholesale and retail businesses. Holliday gained extensive experience leading large. 19. Defendant Moynihan is well experienced in the banking business: Mr. Global Corporate and Investment Banking (October 2007 to December 2008). complex. President. commercial banking. In 2009. as well as international and domestic experience. with responsibility 2000 and Regional Commercial Financial and Investment He is named as a Management from May 2003. As CEO. managing risk and strategic planning and marketing to a varied customer base. defendant in the Securities Class Action. as well as sales and trading operations and our legal department at various times gives him a valuable perspective on our company. Defendant Moynihan is a citizen of North Carolina. His continued service as Chairman of DuPont's board following his retirement as Chief Executive Officer offers him a perspective relevant to his current role as our independent Board Chairman. His experience leading our consumer banking. Moynihan has many years of broad financial services experience.Through his tenure with DuPont. Mr. Prior to BAC's Financial Corporation. and President. Global Banking and Global Wealth Management (January 2009 to August 2009). Mr. makes clear. Holliday was a founding member of the International Business Council furthering his leadership of and experience with large global organizations. He is a member of the Executive Committee. (August 2009 to December 2009). Global Wealth and Investment acquisition of FleetBoston FleetBoston Management from from Management (April 2004 to October 2007). multi-national operations. General Counsel (December 2008 to January 2009). Defendant Brian T. Moynihan is President and Chief Executive Officer of BAC Prior thereto he was President. President.. 2011. 5. he served as Executive Vice President of for Brokerage Services and Wealth 1999 to April 2004. he has a deep understanding of all aspects of our company's business. investment banking and wealth management businesses. 10 . p.
P. Defendant Powell is a citizen of Texas. 2011. since 2002. Chief Executive Officer and President of The First National Bank of Amarillo from 1997 to 2001. He is a member of the Audit. As the former Chairman of the FDIC.20. Chairman. As the BAC Proxy Statement dated March 30. he brings large-scale operations and risk management expertise to our Board through his work as the Federal coordinator tasked with rebuilding plans in the aftermath of Hurricane Katrina and his service on the Board of Regents of the Texas A&M University System. makes clear. He has been a Director since June 2009. Managing Director of Reliance Industries Limited. He has been a BAC Director since March 2011. He is currently a Director of Stone Energy Corporation and QR Energy L. Defendant Donald E. As the BAC Proxy Statement dated March 30. India's largest private conglomerate engaging in the exploration and production of oil and gas. Reliance He is Chairman and Industries Limited. In addition. petroleum refining and marketing. having worked in our industry for over 40 years. Federal Deposit Insurance Corporation (FDIC). Mr. Powell is the Former Chairman. 2011. 2. Powell provides a unique perspective on the regulatory process and in dealing with regulators and government agencies. 5. Previously. Defendant Mukesh D. Chairman of the FDIC from August 2001 to November 2005. and petrochemical and retail businesses. p. p. he was a member of the Board of Regents of the Texas A&M University System from 1995 to 2001. 21. He is a member of the Compensation and Benefits and Credit Committees. during which he served two terms as Chairman. he was the Federal Coordinator for the Office of Gulf Coast Rebuilding from November 2005 to March 2008. Defendant Powell is well experienced in the banking business: Mr. Compensation and Benefits Committees. Ambani is Chairman and Managing Director. Defendant Ambabni is well experienced in cutting edge business issues: 11 . where he has served in a variety of key leadership positions since 1981. Powell has vast financial services expertise. Defendant Ambani is a citizen of India. makes clear.
and expertise in risk management and strategic planning. Ambani's role as Chairman and Managing Director of Reliance Industries Limited provides him with broad experience in the management and oversight of large. Board of Governors of the Federal Reserve System. Defendant Bies is well experienced in banking and finance: Both Ms. a regional bank holding company. 22. p. She is a member of the Audit and Enterprise Risk Committees. Bies is a former Member. In particular. complex international businesses. 2011. Member of the Securities and Exchange Commission's (SEC) Advisory Committee on Improving Financial Reporting and Chairman of that committee's Substantive Complexity Subcommittee from 2007 to 2008. financial regulation and risk management. where she was employed from 1979 to 2001. Ambani has significant experience relevant to our company through building Reliance's leadership positions in refining. Governor of the Federal Reserve System from 2001 to 2007. (Switzerland). Defendant Bies is a citizen of Tennessee. petrochemical exploration and production as well as organized retail..Mr. She is currently a Director of Zurich Financial Services Ltd. As the BAC Proxy Statement dated March 30. Ambani's membership on the UN Advocacy Group supporting the implementation of the Millennium Development Goals provides him further experience with large international organizations. She is on the Senior Advisory Board Member to Oliver Wyman Group. as well as 12 . She has been a BAC Director since June 2009. Bies' role as a Federal Reserve System Governor and her tenure with First Tennessee National Corporation provide her with broad expertise in consumer banking. a management consulting subsidiary of Marsh & McLennan Companies. Chairman of the AssetLiability Management Committee and Executive Risk Management Committee. Bies focused on enterprise financial and risk management during her career with First Tennessee National Corporation and further expanded her regulatory expertise by serving on the SEC's Advisory Committee on Improving Financial Reporting. Mr. since February 2009. Ms. Inc. 2. Mr. and Executive Vice President of Risk Management of First Tennessee National Corporation. Her experience with a primary regulator of our company. Defendant Susan S. Chief Financial Officer. makes clear.
as of June 2011. 23. Previously he was the Commissioner 2002. since 2003. Inc. risk management and global operations. He cofounded. D.. p. 6. Global Corporate Strategy Planning and 13 . give her a unique and valuable perspective relevant to our company's business.C. He is a Senior Advisor to The Carlyle Group. is vice chairman of BAC and is responsible for advising the management team on strategic and capital management matters and working with clients and other key external constituents on behalf of the Company. led and grew an international business systems/systems integration consulting firm and subsequently significantly reformed the IRS's organization. Defendant Rossotti is well experienced in fmance and business: Mr. 24. His board service for Booz Allen Hamilton Holding Corporation and The AES Corporation give him experience with the issues our company faces. enforcement strategy and technology. financial reporting. Other Defendants Defendant Charles H. Inc. Rossotti is a citizen of Washington D. He co-founded of Internal Revenue of the Internal Revenue Service from 1997 to Management Systems. He is a member of the Audit Committee. with responsibility for all finance functions as well as Corporate Treasury. financial performance and risk oversight. an international business and American information technology consulting firm in 1970.her other regulatory and public policy experience. operations and risk management. Rossotti has been a Director since January 2009. Rossotti combines corporate and regulatory experience to provide relevant expertise in audit. Defendant Charles O. such as financial reporting. As the BAC Proxy Statement dated March 30. He was previously a Defendant director of Merrill Lynch & Co. 2011. where he served at various times as President. He joined BAC as executive vice president and chief financial officer in May 2010. service. Noski. He is currently a director of Booz Allen Hamilton Holding Corporation and the AES Corporation. a private global investment firm.. makes clear. Chief Executive Officer and Chairman of the Board until 1997.
We all strive to make good decisions and to do the right thing. Noski is a citizen of North The "Class Action Individual Defendants" comprise those defendants named as defendants in the Securities Class Action. The BAC Code of Ethics provides in part that: Indeed. 25. the Company's own internal We Honor Our Code Making good decisions Countless decisions are made every day at Bank of America. Investor Relations.e. While in certain situations the right result is obvious and the decision can be made easily. MANAGEMENT STRUCTURE AND RESPONSIBILITIES The BAC Officers and Directors named as defendants in this action had the unfettered obligation to act in the best interests of the Company. Regardless of the nature of a particular decision. 26. 27. • Uphold our Bank of America Core Values. but our shareholders and communities as well. Carolina. defendants Moynihan and Noski. keep the following in mind to help you make informed. in many situations the right result is less clear-cut or you may be facing time or other business pressures.. and to effectuate the business of the Company in a lawful. Corporate Investments and Global Principal Investments. However. Every decision we make as an institution and as associates impacts not only the corporation and our teammates. • Take into account relevant laws. Noski is named as a defendant in the Securities Class Action. making decisions is not always easy. IV. • Identify potential options and their consequences. 14 .Development. standards and policies. documents set forth such obligations. honest and ethical manner. thoughtful decisions: • Make sure you have the relevant facts. • Consider competing interests. i.
You must promptly report any knowledge or information about unethical conduct by another associate or agent of the corporation that you reasonably believe to be: • A crime • A violation of law or regulation • A dishonest act. kickbacks. • You should not take unfair advantage of anyone through manipulation. • You must not give or accept bribes. Code complaints and possible violations Bank of America can be held criminally liable if one of its associates or agents commits certain crimes. including misappropriation of funds or anything of value from Bank of America. promises or preferential extensions of credit. concealment. The BAC Audit Committee failed to do its job. we are expected to deal fairly with our customers.Fair dealing and responsibilities to customers At Bank of America. competitors. That Committee was charged with assuring that the Company acted properly and in compliance with all laws and regulations. or the improper recording of corporation's assets or liabilities • A breach of trust You also must report any other circumstances or activities that may conflict with the Code of Ethics. misrepresentation of facts or any other unfair-dealing practice. suppliers and teammates. abuse of privileged information. (ii) the integrity of the consolidated financial statements of the 15 . 28. ***** Reporting certain conduct. As the Audit Committee Charter states in relevant part: Purpose The Audit Committee (the "Committee") of Bank of America Corporation (the "Company") is responsible for assisting the Board of Directors of the Company (the "Board") in exercising oversight of (i) the effectiveness of the Company's system of internal controls and policies and procedures for managing and assessing risk.
compensation. 31. that any such consultants have no relationship to the Company that would interfere with the exercise of their independentjudgment. the Committee shall prepare the report that the Securities and Exchange Commission ("SEC") rules require be included in the Company's annual proxy statement. the members of the Enterprise Risk Committee did nothing to stop management from is wrongful conduct as set forth herein. As set forth in the Credit Committee Charter: Purpose The Credit Committee (the "Committee") of Bank of America Corporation (the "Company") is responsible for exercising oversight of senior management's identification and management of the Company's credit exposures on an enterprise-wide basis and the Company's responses to trends affecting those exposures. at its discretion. in its business judgment. and oversight of senior management's actions to ensure the adequacy of the allowance for credit losses and the Company's credit-related policies. This is especially true here since the Committee has the power and the means to address such wrongdoing: Additional Authority and Expenses The Board delegates to the Committee. legal. accounting or other advisors. and to hire and compensate such external advisors at the Company's expense. 29. advice and assistance from internal or external financial. Similarly. qualifications and independence). in order to further the performance of the Committee's responsibilities. In addition. despite having the power to do so. As set forth in the Enterprise Risk Committee Charter. and (iii) the compliance by the Company with legal and regulatory requirements. the power and authority to obtain. 30. the Committee had more than ample authority to investigate and act: 16 .Company. The Committee shall determine. The Committee shall also provide direct oversight of the corporate audit function and the Independent Registered Public Accounting Firm (including oversight of such accountant's appointment. The Director Defendant members of the BAC Credit Committee were certainly empowered to address the wrongdoings alleged herein but failed to take any action.
liquidity risk. 17 . and senior management's establishment of appropriate systems (including policies. and to hire and compensate such external advisors at the Company's expense. management committees and stress testing) that support control of market risk. except as allocated by the Board of Directors of the Company (the "Board") to another committee of the Board. advice and assistance from internal or external financial. policies and procedures for managing market risk. articulating the Company's risk tolerances as to material categories of risk. 32. interest rate risk and liquidity risk. ***** Additional Authority The Board delegates to the Committee. the Committee shall oversee senior management's establishment of policies and guidelines. legal. liquidity risk and reputational risk. and review the Company's performance relative to these policies. accounting or other advisors. interest rate risk. interest rate risk. The Committee shall periodically review management's strategies. Certainly. the performance and functioning of the Company's overall risk management function. operational risk and reputational risk. the Enterprise Risk Committee had the means and authority to investigate the Company's misconduct and to rein it in: Committee Authority and Responsibilities In performing its oversight responsibilities as set forth above. procedures. in order to further the performance of the Committee's responsibilities. the Company's material risks.Purpose The Enterprise Risk Committee (the "Committee") of Bank of America Corporation (the "Company") is responsible for exercising oversight of senior management's identification of the material risks facing the Company and. procedures and tolerances. to be adopted by the Board. and receive and review reports from senior management (including the Chief Risk Officer and appropriate management committees) regarding compliance with applicable risk related policies. The Committee also shall oversee senior management's responsibilities with respect to the Company's capital management and liquidity planning. including market risk. oversight of senior management's management of. at its discretion. and planning for. as established by the Company's management. the power and authority to obtain. procedures and tolerances.
its Board) was aware of every facet of the ewe acquisition: We did extensive due diligence. any director of a major bank would have been aware of the following: 36. Indeed. Prior the acquisition of ewe. Default rates on subprime and adjustable rate mortgages (ARM's). then CEO Ken Lewis asserted that BAC (and. So we feel comfortable with the valuation. 2008. FACTUAL ALLEGATIONS Background on the CWC Mortgage Situation Demonstrates that the BAC Directors ofBAC Were Aware of what was Arising in the Marketplace and Chose to Ignore these Major Red Flags As reported in a New York Times article of January 23. concerning the 34. ewe acquisition. the United States housing bubble had already burst. Directors of a major bank such as BAC from 2008 on would have been keenly aware of the major issues which would affect residential mortgages going forward. V. inter alia. We looked at every aspect of the deal. 35. it may be reasonably inferred. We had 60 people inside the company for almost a month. A. from the assets to potential lawsuits and we think we have a price that is a good price. It was the most extensive due diligence we have ever done. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they 18 . The wrongdoing was notorious since: (i) there was extensive press coverage.33. and the failure by BAe to honor commitments it signed with the Arizona. began to increase quickly thereafter. The BAC Directors failed to follow the Company's Code of Ethics. the false claims reimbursements. and the various Committee mandates. and (ii) unlawful actions were detected and reported by numerous government regulators and Board members would have become of aware of such reports by dint of their positions and responsibilities. in that they were aware of on-going material wrongdoing which was highly publicized. the Robo-Signing. and failed to take any meaningful action. Yet the Board did nothing to stop.
which caused U. These mortgages enticed borrowers with a below market interest rate for some predetermined period. There ensued an ongoing foreclosure epidemic. the economic incentives provided to the originators of subprime mortgages. followed by market interest rates for the remainder of the mortgage's term. But refinancing became more difficult. refinancing became more difficult. Additionally. once interest rates began to rise and housing prices started to drop moderately.would be able to quickly refinance at more favorable terms. This placed additional downward pressure on housing prices. Borrowers who would not be able to make the higher payments once the initial grace period ended were planning to refinance their mortgages after a year or two of appreciation. Easy credit. The credit and home price explosion led to a building boom and eventually to a surplus of unsold homes. home prices failed to rise as anticipated. and which continues to be a key factor in the global economic crisis. and ARM interest rates reset higher. which further lowered homeowners' equity. However. of which subprime loans are one part. 38.S. along with outright fraud. 37. 39. The decline in the number of home owners making timely mortgage payments also reduced the value of 19 . Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default. and a belief that home prices would continue to appreciate. Defaults and foreclosure activity increased dramatically as easy initial terms expired. foreclosures began to dramatically increase as did the supply of homes for sale. increased the number of subprime mortgages provided to consumers who would not have otherwise qualified for conforming loans. had encouraged many subprime borrowers to obtain adjustable-rate mortgages. once home prices began to decline in many parts of the USA. housing prices to peak and begin declining in mid2006. As more borrowers stop making timely payments on their mortgages.
Mortgage fraud by lenders and borrowers increased enormously. One study places the losses resulting from fraud on 20 . 42. Furthermore. Increasing foreclosure rates increases the inventory of houses offered for sale. By September 2010.4% less than in the preceding year. average U. In 2004. In 2007.9 million were vacant. The number of new homes sold in 2007 was 26. This major decline in house prices meant that many borrowers had zero or negative equity in their homes. an estimated 8.8% of all homeowners--had negative equity in their homes. of which almost 2. 41. the inventory of unsold new homes was 9. As prices declined. the highest value of this ratio since 1981. housing prices had declined by over 20% from their mid-2006 peak. a number that is believed to have risen to 12 million by November 2008.S.8 times the December 2007 sales volume.S. homes were worth less than the mortgage loan. 40. By September 2008. more homeowners were at risk of default or The use of automated loan approvals allowed loans to be made without appropriate review and documentation. By January 2008. suspicious activity reports-reports their affiliates-related of possible financial crimes filed by depository banks and to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. 40% of all subprime loans resulted from automated underwriting. Mortgage underwriting standards declined precipitously during the boom period. foreclosure. As of March 2008. The overhang of unsold homes lowered house pnces. which eroded the net worth and financial health of banks and financial institutions.8 million borrowers--l0. the Federal Bureau of Investigation warned of an "epidemic" in The number of mortgage fraud. an important credit risk of nonprime mortgage lending.mortgage-backed securities. nearly four million existing homes were for sale. 23% of all U.
down 31% from a record profit of $145 billion in 2006. insured depository institutions earned approximately $100 billion. the BAC Board ignored all of the obvious red flags and allowed the Company to engage conduct post the CWC 21 . to $7.3 billion in 2008 Ql.. Recognizing the difficulties with BAC's mortgage portfolio. Bondholders and other traditional lenders provided another $7 trillion.3 trillion. Mortgage defaults and provisions for future defaults caused profits at the 8.e. A sample of 735 Collateralized Debt Obligation ("CDO") transactions originated between 1999 and 2007 showed that subprime and other less-than-prime mortgages represented an increasing percentage of CDO assets. The total amount of mortgage-backed securities issued almost tripled between 1996 and 2007. and corporations owed roughly $25 trillion during 2008. 45.2 billion in 2006 Q4 to $646 million in the same quarter a year later. rising from 5% in 2000 to 36% in 2007. a decline of 98%. consumers. 43. The securitized share of subprime mortgages (i. a decline of 46%. American homeowners. American banks retained about $8 trillion of that total directly as traditional mortgage loans. sometimes called "MBS" or RMBS". Securitization allowed the banks to bundle residential mortgages as security pools and issue other securities based on the collateral. those passed to third-party investors via MBS) increased from 54% in 2001.533 USA depository institutions insured by the Federal Deposit Insurance Corporation to decline from $35.6 billion in 2007 Ql to $19. Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities. In all of 2007. 44. 2007 Q4 saw the worst bank and thrift quarterly performance since 1990. The remaining $10 trillion came from the securitization markets.mortgage loans made between 2005 and 2007 at $112 billion. to 75% in 2006. Profits declined from $35.
B. the audits are reported to have concluded that the banks effectively cheated taxpayers by presenting the FHA with false claims by filing for federal 22 . engaging in consumer fraud with respect to mortgagees in Nevada.acquisition relating to mortgage foreclosures and FHA applications for reimbursement which. risking substantial liability for repeated violations of the Federal False Claims Act. As an example to the other major lenders involved in the Robo-Signing scandal. as described in this Complaint. which must now decide whether to file charges. hindering the Office ofInspector General (the "DIG"). This conduct included the widespread Robo-Signing of foreclosure documents. the federal agencies launched their own probes. details of which have been leaked to the news media. BAC may have violated the False Claims Act by seeking Federal Housing Administration (the "FHA") reimbursement on Robo-Signed foreclosures. and allowing conduct to have occurred which caused BAC to be named as a defendant in a securities class action. have exacerbated the Company's problems and its actual and potential liabilities. 47. Based on leaked stories. Amid reports that many large lenders improperly accelerated foreclosure proceedings by failing to amass required paperwork. the DOJ has filed suit against Deutsche Bank seeking damages pursuant to the False Claims Act. The audits of BAC and other financial institutions were completed between February and March of 2011. 48. BAC Stonewalls the Federal Robo-Signing Investigation Based on a confidential investigation by the HUD inspector general. 46. refusals to comply with an Arizona Consent Judgment. The federal audits mark the latest fallout from the national foreclosure crisis that followed the end of a long-running housing bubble. and the findings have been referred to the Department of Justice. of the Department of Housing and Urban Development ("HUD") investigation.
Oklahoma and New Mexico and consists of 26 employees in five offices.reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents. receive HUD funding or guarantees. Nixon was then employed by the HUD Office of Inspector General (the in the Region VI "OIG"). Nixon was assigned to manage the SAC foreclosure review. OIG Region VI covers Texas. As part of of HUD programs and those OfG's strategic objective to improve the effectiveness of the FHA. as an Assistant Regional Inspector General for Audit ("ARIGA") Office in Fort Worth. 52. SAC refused to cooperate with the investigation. In October 2010. the insurance benefits being provided by the federal government. 2011.8 million loans guaranteed by the FHA. SAC serviced more than 3. SAC submitted 40. 51. SAC engaged in a plan to wholly obstruct the federal investigation. Nixon had between 7 to 10 Senior Auditors and Auditors in multiple offices working under his direction. based on the affidavit of William W.7 billion. OIG conducted reviews of the foreclosure practices of five of the largest servicers as they relate to FHA loans which were foreclosed upon and for which the servicers have submitted a claim for insurance benefits. FHA claimstotaling During Federal fiscal years 2009 and 2010. 50. SAC was selected for review because it was one of the five largest servicers of FHA loans during the review period. Indeed. Texas. Nixon sworn to June 1.219 The audit objective was to determine whether SAC had $5. complied with applicable foreclosure procedures when processing foreclosures on FHA-insured loans. performing audits/reviews entities that. 23 . 49.
C.. If the loan information is incorrect. Further any required notarization is often done months later. The False Claims Act. Nixon's team sought to obtain an understanding of BAC's policies.. 56. a false record or statement material to a false or fraudulent claim. 57.. A violator " . Robo-Signed documents are prepared by automatically by computers. in direct contradiction that the documents were personally signed before the notary. . inter alia . Liability under the Act can be enormous. there is a significant chance that the government will seek damages from BAC under the False Claims Act for the obtaining of reimbursement based on false and fraudulent documentation submitted in support of the claim. Since many of the Robo-Signed mortgage foreclosures involved BAC seeking reimbursement from the FHA for the Company's losses.is liable to the United States Government for a civil penalty of not less than $5. 31 U. This included reviewing applicable policies and procedures in effect during the review period. as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 plus 3 times the amount of damages which the Government sustains because of the act of that person. but the person signing it has no way of knowing it since they are not checked.000. 55. and performing a walkthrough. and practices. procedures.53. As a result of the Robo-Signing of foreclosure documents. BAC may have violated the False Claims Act. These basic procedures 24 . and the subsequent application by BAC to obtain payment by HUD on the mortgages quarantined by the FHA. 54. uses. by its very nature constitutes the false signing of a court document or affidavit wherein the person signing it avers that he or she has personal knowledge of the matters therein. or causes to be made or used.000 and not more than $10. Robo-Signing.S. then the documentation will be incorrect. Section 3729 prohibits one from making a claim for payment from the United States where such person. interviewing staff. knowingly makes. based on the available loan information.
provide auditors with an understanding of how BAC operates to comply with mandated requirements. 58. When interviews were permitted. For instance. BAC's attorneys refused to allow employees to answer questions. 59.600 records for its other servicing IDs. Nonetheless. despite the fact that the BAC vice-president who was objecting had Robo-Signed almost 47. DIG was forced to issue two DIG subpoenas requesting documents. BAC personnel later reneged and claimed they did not understand the need for the procedure. In another instance. Nonetheless. Ultimately Nixon was forced to request the Department of Justice to issue Civil Investigative Demands ("CIDs") to current and former employees to compel testimony. 60. despite that BAC had agreed to permit Nixon's team to conduct a walkthrough. 25 . Further. This non-compliance impaired Nixon's review because it impaired the team from measuring the impact ofBAC's foreclosure practices. On a number of occasions. notaries. provided conflicting affiant information. and attorneys for each claim for only one-third of its FHA claims records. omitting approximately 4. Eventually. BAC slowed and hindered the production of documents requested by Nixon's team. BAC provided data that identified signers. and could not identify all authorized notaries.000 foreclosure documents and notarized 45 foreclosure documents during the review period. did not provide complete foreclosure documents for the items in the sample. The review was significantly hindered by BAC's reluctance to allow Nixon's team to interview employees or to provide data and information in a timely manner or a point of contact who could explain and clarify data. it provided FHA insurance claims data for only two of its servicing IDs. the presence or involvement of the BAC's attorneys limited the effectiveness of those interviews. data and information provided in response to the subpoenas were not complete. BAC provided only excerpts of subpoenaed personnel files. Additionally.
II 26 . 64. from sketchy paperwork to the use of "robo-signers. 65. with even more costs to be incurred for improving their internal operations and modifying troubled borrowers' home loans. 63. Thereafter.61. Certainly the handwriting is on the wall. But a Reuters investigation finds that many are still taking the same shortcuts they promised to shun. Some agencies involved in the settlement discussions among the five banks most involved in the mortgage foreclosure mess (which includes BAC) expect these banks to pay as much as $30 billion.2011. the DOJ cited findings from HUD investigations in a lawsuit it filed against Deutsche Bank AG. seeking recompense of at least $1 billion for defrauding taxpayers by "repeatedly" lying to FHA in securing taxpayer-backed insurance for thousands of shoddy mortgages. BAC has not halted Robo-Signing. HUD's inspector general found that more than 49 percent of loans underwritten by FHA-approved lenders in a sample did not conform to the agency's requirements. Given that in March. BAC clearly has very substantial exposure. (It was later reported in the press that BAC had resumed Robo-Signing foreclosures in at least one county in North Carolina. Recently. As Reuters reported on July 18. BAC said it was resuming foreclosures. in a special report entitled "Banks Continue Robo-Signing": America's leading mortgage lenders vowed in March to end the dubious foreclosure practices that caused a bruising scandal last year. This lawsuit represents the "model" litigation which could be filed against the major lending banks including BAC.) 62. one of the world's 10 biggest banks by assets. Even in light of these investigations. having satisfied itself that prior problems had been solved. The OIG BAC audit is reported to have found that the Company failed to correct faulty foreclosure practices even after imposing a foreclosure moratorium in October 2010.
State Investigations into BAC's Mortgage Foreclosure Practices Attorneys General in numerous states. Bank of America. Of these companies. which runs an electronic registry of mortgages. but "the real question is whether the servicer complied with all legal requirements. armed with what they portray as incontrovertible evidence of mass Robo-Signings from preliminary investigations. filing to foreclose. Some loan servicers "continue to cut comers." Federal bank regulators signed settlements in March with 14 loan servicers -." said David Stevens. remediation for some who were harmed and a halt to the filing of false documents. The 14 firms promised further internal investigations. "Families should be using every opportunity they can to protect their rights. HSBC Bank USA." and if foreclosure paperwork is faulty homeowners should contest it. 27 . president of the Mortgage Bankers Association. Nevada and Arizona already launched lawsuits against BAC. All such behavior had stopped by the end of 2010. are probing mortgage practices more closely.. It has been reported that various states are investigating or have filed lawsuits against BAC. Delaware sent Mortgage Electronic Registration Systems Inc.***** One of the industry's top representatives admits that the federal settlements haven't put a stop to questionable practices. looking at the role played by a unit of Lender Processing Services. Reuters has found at least five that in recent months have filed foreclosure documents of questionable validity: OneWest. Nearly all borrowers facing foreclosure are delinquent. The state of Illinois has begun examining potentially fraudulent court filings. a subpoena demanding answers to 75 questions. C. California may file its own suit." The loss of a home is "the most critical time in a family's life. he said.banks and other companies that perform tasks for mortgage investors such as collecting payments from homeowners and when necessary. 66. they said. Wells Fargo and GMAC Mortgage.
The NYAG raised concerns that the banks' push for a quick settlement. the NYAG has objected to a proposed State Mortgage Foreclosure Task Force settlement with major U.S. and the New York Federal Reserve. 71. Now other AG's have echoed Schneiderman's objection. As reported on July 27. 68. including BlackRock. 69. BAC's share of this would be very substantial. 2011. 70. protecting them from future liabilities. banks.were not undertaken. MetLife. Schneiderman has launched an investigation of the recently announced BAC proposed $8. If the legal steps that guide securitization -.67. Earlier this year. though no one involved in the negotiations has confirmed that figure.5 billion settlement involving 22 large purchasers of RMBS. The New York inquiry could prove explosive: Wall Street's great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. a critical step under New York law -. then the investors who bought the bundled loans could force the companies to buy them back. in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures. would block his office's probe into questionable foreclosure practices.like taking mortgage documents from one party to another. 2011. Notwithstanding that. New York Attorney General Eric Schneiderman (the "NTAG") has targeted BAC . and his objections are starting to have a domino effect. suggesting that the banks such as BAC may not get a global release of liability. NYAG Schneiderman stood alone against the federal government's desire to quickly force a settlement between the big banks and attorneys general from all 50 states about improper loan servicing and foreclosures. some reports suggest that the banks would pay up to $20 billion to settle the issue. Pimco. compelling them to eat enormous losses. As reported on June. This proposed settlement must be 28 .
judicially approved. 2010. Defendants concealed defects in the recording of mortgages and improprieties with respect to the preparation of foreclosure paperwork that harmed BAC's investors when BAC had to For much temporarily discontinue foreclosures and admit to the problems it was experiencing. against BAC and certain of its officers and/or directors for violations of the Securities Exchange Act of 1934 (" 1934 Act"). during the Class Period. inclusive (the "Class Period"). et al. (Civil Action No. Subsequently. As alleged in the Securities Class Action Complaint. Bank of America Corp. 2011. 2010 and October 19. 2011. the NYAG has moved to intervene in the action claiming that the settlement may be unfair. defendants issued materially false and misleading statements regarding the Company's business. a purported class action was filed in the United States District Court for the Southern District of New York claiming violations of the federal securities laws by BAC. 75." wherein it omitted billions of dollars in debt from its balance sheet II 29 . defendant Moynihan and defendant Noski. and the trustee has filed a petition in New York State Supreme Court seeking such approval. Introduction To The Securities Class Action The Securities Class Action was brought on behalf of a purchaser class of BAC securities between January 20.. defendants also concealed that BAC had previously engaged in a practice known as do liar rolling. The action (the "Securities Class Action") is entitled Pennsylvania Public School Employees' Retirement System v. The allegations of the Securities Class Action are as follows: 1. The Securities Class Action On February 2. as it may block the NYAG from bringing subsequent legal action against BAC. 72. on August 4. 73. of the Class Period. 74. 11-cv-733 (WHP). D.
on May 26. BAC announced a nationwide foreclosure halt pending a review of its foreclosure processes and whether there were irregularities with respect to its previously completed foreclosure activities. 2010. The attorneys general launched a joint investigation of the practices banks used evicting delinquent borrowers from their homes. Later. the attorneys general of 50 states.2010. BAC announced its third quarter 2010 financial results. 2010. In September 2010. 2010.77. 2010. BAC stock fell $0. 80. On October 19. BAC's stock traded at artificially inflated prices during the Class Period.3 billion and a diluted earnings per share CEPS") loss of $0.69 per share to close at $12.reported to the public. banks regarding loan underwriting guidelines and their allowance for credit losses. 77. reaching a high of $19.48 per share on April 15. On October 13. 76. On May 20. 81. BAC filed its Form IO-Q for the first quarter of 2010 in which it disclosed aspects of its "repo-to-maturity'' transactions ("dollar rolling"). 78. BAC further reported receiving $18 billion in claims about faulty home loans that it might have to repurchase.2010. announced a probe into U.60 per share on In October 14. On October 8. claiming the transactions did not have a material impact on BAC's balance sheet.S. 30 .2010. news surfaced about foreclosure snafus at BAC and other large banks due to paperwork issues. reporting a net loss of $7. on volume of 511 million shares. The Wall Street Journal reported that BAC had hidden billions of dollars in debt from investors when reporting its financial statements over the past three years. 79. led by Iowa. After this news. As a result of defendants' false statements.
citing testimony of a BAC employee who admitted that BAC (through its acquisition of CWC in July 2008) routinely did not bother to transfer essential documents for loans sold to investors. (b) BAC had not properly recorded many of its mortgages when originated or acquired. BAC stock dropped $0. 2010. on November 16. Later. However. 2010. (d) BAC's failure to properly process both mortgages and foreclosures would impair the ability of BAC to dispose of bad loans.54 per share.80 per share on October 19. (c) Defendants failed to maintain proper internal controls related to processing of foreclosures. to close at $11.82. As American Banker reported on Monday.2010 . 85. which were known by the defendants but concealed from the investing public during the Class Period. after the above revelations 31 . a New Jersey Bankruptcy Judge dismissed a BAC claim against a debtor.a one-day decline of 5% on volume of 574 million shares. As a result of defendants' false statements and omissions. were as follows: (a) BAC did not have adequate personnel to process the huge numbers of foreclosed loans in its portfolio. November 22. "The BAC employee's admission that the lender customarily held on to promissory notes could also undermine the industry's position that document transfers to securitization trusts are fundamentally sound. BAC's common stock traded at artificially inflated prices during the Class Period. which would severely complicate the foreclosure process if it became necessary. and (e) BAC had engaged in a practice known internally as "dollar rolling" to remove billions of dollars of debt from its balance sheet over the prior years. 83." 84. The true facts. On this news.
CWC continued to be the servicer but with no real rights to payments or rights to 32 . 2008. (ii) artificially inflated the price of BAC common stock. Defendants' fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of BAC common stock was a success. CWC had utilized a company called Mortgage Electronic Systems. This acquisition dramatically increased the number of home mortgage loans serviced by BAC from 4 million pre-acquisition to 14 million post acquisition. Registration Prior to the acquisition. 86. nor to foreclose. In order to save time and money on registering the mortgage liens in the public records of the various counties in which CWC originated the loans. Inc. As alleged in the Securities Class Action. ("MERS") to record the vast number of mortgage loans it was originating using extremely aggressive lending practices. defendants are liable for: (i) making false statements. CWC used MERS to track the movement of the loans through the securitization process. or (ii) failing to disclose adverse facts known to them about BAC. BAC acquired CWC by issuing 107 million shares of BAC common stock for 583 million shares of CWC common stock. and (iii) caused plaintiff and other members of the Class to purchase BAC common stock at inflated prices. the mortgages on homes became separated from the notes on the homes. a much higher proportion of CWC loans were delinquent and likely to lead to foreclosure than those BAC had previously serviced. 88. sending them down nearly 42% from their Class Period high. MERS might be the mortgage holder but not the noteholder. the Company's shares were hammered by massive sales. Through the process of working with MERS. 87. Even more significantly. as it: (i) deceived the investing public regarding BAC's prospects and business. However. On July 1.seeped into the market. MERS was to be a nominee of CWC but not necessarily the mortgagee and not entitled to payments. the process led to a great deal of confusion.
90. BAC had more than $20 billion in non-performing loans and was working on tens of thousands of foreclosures. making it difficult to deal with borrowers. In order to prevent a collapse in BAC's stock price and prevent borrowers from stopping foreclosures due to faulty procedures. 92.2 billion or a diluted EPS loss of $0. The release stated in part: "While it's disappointing to report a loss for the fourth quarter.60. 2010. BAC executives decided to use CWC's homegrown technology. in 2009. but the Following the acquisition. but soon discovered that CWC's system did not communicate mortgage-servicing well with BAC's system.3 billion and a net loss for the fourth quarter of2009 of$5. This practice was concealed from investors at the beginning of the Class Period. The Company reported full-year 2009 net income of $6.foreclose. More alarming. This became a critical problem when loans went into foreclosure. These defects began surfacing in various foreclosure proceedings extent of the problems were concealed by BAC. 89. For years prior to 2010. involved BAC misclassifying billions of dollars of debt as sales on quarter-end balance sheets. This practice. defendants concealed the paperwork and recording problems associated with the loans which would inhibit efficient foreclosures. known in the industry as Repo 105. 91." said Chief Executive 33 . was BAC's discovery that information was missing from many CWC loan files. however. BAC issued a press release announcing its fourth quarter and full-year 2009 financial results. By year-end 2009. 2. False Statements Allegedin the Securities Class Action On January 20. there were a number of important accomplishments worth noting. since paperwork and recording problems would make it difficult if not impossible to foreclose on certain loans. BAC had engaged in a practice intended to make its fmancial statements appear more favorable.
for the TARP investment." a BAC spokesman said. including BAC. That is what happened recently at Bank of America involving a trade designed to mature before the end of 2009's first quarter. Moynihan. while at the same time agreeing to sell the securities back before quarter's end. The Wall Street Journal published an article about large banks. On April 9. leading to catastrophic bank runs in 2008 at firms including Bear Steams Cos. people familiar with the matter say. we have taken steps to strengthen our balance sheet through successful securities offerings. The SEC now is seeking detailed information from nearly two dozen large financial firms about repos. Excessive borrowing by banks was one of the major causes of the financial crisis. we repaid the American taxpayer.Officer and President Brian T. Since then. SEC Review. according to people familiar with the matter. according to data from the Federal Reserve Bank of New York. The article. then Bank of America's chief financial officer for global markets. **** "The efforts to manage the size of our balance sheet are appropriate and our policies are consistent with all applicable accounting and legal requirements. Two Bank of America traders bought $40 billion of mortgage-backed securities from clients for one month. This "roll" trade provided the clients with cash and the bank with fees. with interest. a former Bear Stearns trader who oversaw the traders 34 . which had been concealing their debt levels from investors over the previous five quarters. entitled "Big Bank Mask Risk Levels. And third. ***** Some banks make big trades that don't show up in quarter-end balance sheets. 2010." stated in part: Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public. worried that their stocks and credit ratings could be punished. Second. The SEC's inquiry follows recent disclosures that Lehman used repos to mask some $50 billion in debt before it collapsed in 2008. all of our non-credit businesses recorded positive contributions to our results. Quarter-End Loan Figures Sit 42% Below Peak. told Michael Nierenberg." 93. signaling that the agency is looking for accounting techniques that could hide a firm's risk-taking. banks have become more sensitive about showing high levels of debt and risk. "First. and Lehman Brothers. Then Rise as New Period Progresses. Robert Qutub.
2010. 2010. We also are seeing ample indications that those integrated capabilities hold promise for long-term shareholder value. "With each day that passes. "Our customers individuals. 2010. reflecting an improvement in credit quality. appearing to some at headquarters that the group had defied the order to cap the trade. in which it disclosed aspects of its prior failure to accurately report its balance sheets. On April 16. As the transferred securities were recorded at fair value in trading account assets.increasingly see the value of our integrated capabilities.28 diluted EPS. Strong capital markets activity. The press release stated in part: Two factors primarily drove results in the first quarter: Provision for credit losses fell by $3. the amount tied to the trade shot up to $60 billion. should have been recorded as secured borrowings. These periods and amounts were as follows: March 31. the change would have had no impact on consolidated results of operations. BAC filed its Form lO-Q for the quarter ended March 31. reporting net income of $3. The Form 10-Q stated in part: At the end of certain quarterly periods during the three years ended December 31. companies. 2009 ." said Chief Executive Officer and President Brian T. Moynihan. 2007$4.6 billion from the year-ago period. Had the sales been recorded as secured borrowings. one of these people said. December 31.$573 million." 94. however. the Corporation had recorded certain sales of agency mortgage-backed securities (NIBS) which. 2007 . these people say. trading account assets and federal funds purchased and securities loaned or sold under agreements 35 . to cap the size of the short-term transaction. and March 31. people familiar with the matter say.who made the roll trade.$10. BAC issued a press release announcing its first quarter 2010 financial results. and our results reflect a gradually improving economy. helped drive results for Global Banking and Markets.$1. A bank spokeswoman said "the team was aware of and worked within its risk limits. September 30. and institutional investors . the 2010 story appears to be one of continuing credit recovery. 2008 . before dropping to $25 billion. based on a more recent internal review and interpretation. 2009.7 billion. including record sales and trading driven by industry-leading corporate and investment banking positions.8 billion.5 billion. A week later." 95.2 billion or $0. On May 7.
2009. We have the most complete financial franchise in the world.7 percent of total assets or total liabilities. tile Corporation believes that these transactions did not have a material impact on tile Corporation's Consolidated Balance Sheet. Our credit quality continues to improve. After releasing its second quarter 2010 results on July 16.to repurchase would have increased by the amount of the transactions. As the management team and I put together the principles we're 36 . 2010 and December 31. very liquid securities such as U.27 diluted EPS.and create the financial institution that customers tell us they want. In repurchase transactions." 97. However. and accordingly.0 billion and $6. built on a broad relationship of clarity. Accordingly. and helping them manage through challenging times. The press release stated in part: "Our quarterly results show that we are making progress on our strategy to align around our three core customer groups . media representatives and analysts. in some cases faster than we anticipated as we came into this year. the increase in all cases was less than 0." said Chief Executive Officer and President Brian Moynihan. On July 16. BAC hosted a conference call with investors. and institutional investors . 96. "We improved our capital foundation through retained earnings. with the earnings. The Company reported net income of $3. derecognizes the securities from the balance sheet and recognizes a gain or loss in the Consolidated Statement of Income. BAC issued a press release announcing it second quarter 2010 financial results.1 billion or $0. At March 31.S. Treasury securities or securities issued by government-sponsored entities. and credit quality improved even faster than expected. typically. 2010. in certain situations. businesses. transparency. the Corporation had outstanding RTM transactions of $3. the termination date for a repurchase agreement is before the maturity date of the underlying security. the Corporation may enter into repurchase agreements where the termination date of the repurchase transaction is the same as the maturity date of the underlying security and these transactions are referred to as "repo-tomaturity" (RTM) transactions. we are continuing to move our core franchise forward.1 billion in net income for the quarter. during which defendant Moynihan represented the following: We did make $3.5 billion that had been accounted for as sales. and we are focused on executing our strategy and delivering outstanding long-term value to our customers and shareholders. however.2010. The Corporation accounts for RTM transactions as sales in accordance with GAAP. but importantly. The Corporation enters into RTM transactions only for high quality.consumers.
2010.000 foreclosure files in five separate offices. led by Iowa. BAC announced a nationwide foreclosure halt pending a review of its foreclosure processes and whether there were irregularities with respect to its previously completed foreclosure activities. 103. one of the principles we've been focused on is to continuing [sic] to strengthen our balance sheet.a one-day decline of 5% on volume of 574 million shares. 2010. and we're attempting to help every customer we can. 99. BAC was sorting through 102. banks regarding loan underwriting guidelines and their allowance for credit losses.54 per share. short sales and modifications. to close at $11. we'll continue to see elevated foreclosures. On this news. 37 .going to operate under to make sure that we can position this company now and in the future in the way it needs to be positioned. The attorneys general launched a joint investigation of the practices banks used in evicting delinquent borrowers from their homes.80 per share on October 19. BAC's stock fell $0.S. on volume of 511 million shares. On October 13. 102. 2010. In November 2010. the attorneys general of 50 states. 2010 -. short sales and other liquidations for the next several quarters as we clean up the legacy Countrywide portfolio. BAC further reported receiving $18 billion in claims about faulty home loans that it may have to repurchase.69 per share to close at $12. we're devoting a ton of effort and expense to working through defaults. reporting a net loss of $7.60 per share on October 14. On October 8. After this news. 98. attempting to retroactively document mortgage recording and transfers so it could complete foreclosures in various locations with varying rules.77. In spite of all that hard work. 2010. 101. BAC announced its third quarter 2010 financial results.3 billion and a diluted EPS loss of $0. ***** At the same time. On October 19. BAC's stock dropped $0. announced a probe into U. 100.
38 . after the above revelations seeped into the market. a New Jersey Bankruptcy Judge dismissed a BAC claim against a debtor. and (e) BAC had engaged in a practice known internally as "dollar rolling" to remove billions of dollars of debt from its balance sheet over the prior years. which would severely complicate the foreclosure process if it became necessary. citing testimony of a BAC employee who admitted that BAC/CWC routinely did not bother to transfer essential documents for loans sold to investors. the true facts. As alleged in the Class Action Complaint. were as follows: (a) BAC did not have adequate personnel to process the huge numbers of foreclosed loans in its portfolio. As American Banker reported on Monday. However. the Company's shares were hammered by massive sales. (b) BAC had not properly recorded many of its mortgages when originated or acquired. (d) BAC's failure to properly process both mortgages and foreclosures would impair the ability of BA C to dispose of bad loans. on November 16.2010. 2010.104. Later. BAC's common stock traded at artificially inflated prices during the Class Period. sending them down nearly 42% from their Class Period high. As a result of defendants' false statements and omissions. (c) Defendants failed to maintain proper internal controls related to processing of foreclosures." 105. "The BAC employee's admission that the lender customarily held on to promissory notes could also undermine the industry's position that document transfers to securitization trusts are fundamentally sound. which were known by the defendants but concealed from the investing public during the Class Period. 106. November 22.
As alleged in the Class Action Complaint, during the Class Period, as detailed
herein, the defendants made false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of BAC common stock and operated as a fraud or deceit on Class Period purchasers of BAC stock by misrepresenting the Company's business and prospects. Later, when the defendants' prior misrepresentations and fraudulent conduct became apparent to the market, the price of BAC common stock fell precipitously, as the prior artificial inflation came out of the price over time. As a result of their purchases of BAC common stock during the Class Period, plaintiff and other members of the Class suffered economic loss, i.e., damages, under the federal securities laws. E. Actions by the States of Arizona and Nevada Charging BAC with Failing to Abide By a Consent Order and for Consumer Fraud
In December 2010, the State of Arizona brought suit against BAC and its
subsidiaries alleging that they had violated a Consent Judgment previously entered into; and had continued their previous course of deception in violation of Arizona's Consumer Fraud Act by misrepresenting to consents that they were eligible for modification of their mortgage loans; when BAC would make a decision on such modification requests; whether BAC had approved the requests; why such modifications were rejected; and whether and when BAC would foreclose. 109. The Consent Judgment obligated BAC to make loan modifications in good faith,
but has subsequently moved homeowners toward foreclosure while their modification applications were pending despite a pledge to halt foreclosures; failing to make timely decisions on loan modifications, leaving eligible borrowers in limbo; failing to use best efforts to secure
investor approval of modifications; and failed to timely respond to complaints as to its performance under the Consent Judgment. 110. Notification by Arizona to BAC that its conduct represented a violation of the
Consent Judgment was rejected by the bank and the litigation followed. In addition, BAC's conduct towards Arizona consumers was not limited to just a few homeowners. Rather it was part of a pervasive course of conduct not only on the local level, but nationally ranked last in its treatment of homeowner requests and complaints. 111. Arizona seeks substantial fines and restitution. 2. 112. Nevada
In December 2010 the State of Nevada filed an action against BAC and
subsidiaries alleging that the bank had violated the Nevada Deceptive Trade Practices Act ("DTPA"). In February 2011, the action was removed to the United States District Court for the District of Nevada, entitled State of Nevada vs. Bank of America Corp. et al., Case No.3: 1111cv-00135-RCL(RAM). 113. On August 30, 2011, Nevada sought leave to file its Second Amended Complaint,
(the "Nevada Complaint") which alleges wide-spread and continued wrongdoing by BAC from 2009 to the present. 114. As alleged in the Nevada Complaint, beginning in 2009, BAC violated the
Nevada DTPA by engaging in a pattern and practice of misrepresentations in their loan modification programs. Specifically, it misled homeowners by: a. promising to act upon requests for mortgage modifications within a
specific period of time, usually one or two months, but instead stranding consumers without answers for more than six months or even a year;
falsely promising consumers that their initial, trial payment modifications
would be made permanent if and when they made the required three payments on those plans, but then failed to convert those modifications; c. falsely assuring them that their homes would not be foreclosed while their
requests for modifications were pending, but sent foreclosure notices, scheduled auction dates, and even sold consumers' homes while they waited for decisions; d. misrepresenting the eligibility criteria for modifications and providing
consumers with inaccurate and deceptive reasons for denying their requests for modifications; e. falsely notifying consumers or credit reporting agencies that consumers
were in default when they were not; and f. offering modifications on one set of terms, but then providing them with
agreements on different terms, or misrepresenting that consumers had been approved for modifications. 115. BAC's misconduct in misrepresenting its mortgage modification program
continues through the present and was confirmed by Nevada investigators in interviews with consumers, former BAC employees, and other third parties and through review of relevant documents. 116. BAC's own former employees describe an environment in which BAC failed to
staff its modification functions with employees with the training, skills, experience, authority, and information necessary to carry out the Bank's commitments. According to the employees, the modification process was chaotic, understaffed, wrought with technical problems, and not oriented to customers. According to at least one former employee, BAC reprimanded them for spending too much time with individual customers and directed them to limit call times with
Defendants knew (and were on notice) that they had never properly transferred the mortgages in question to those trusts. In addition. communities.) After acquiring CWC. While the course of unlawful conduct described in this Complaint began with CWC. that they had authority to foreclose upon consumers' homes as the servicer for the trusts that held these mortgages. and deeply disrupting the State's housing market. 120. and systemic violations of Nevada law for which the State seeks to hold it responsible.consumers to an average of seven to ten minutes. 119. correct or update relevant information. had a devastating impact on Nevada's homeowners. 118. SAC is liable for its violations of Nevada law. 117. stripping and unauthorized and unnecessary foreclosures in the State of Nevada. leaving them almost no time to fully or accurately answer questions or provide explanations. dislocating families. blighting neighborhoods. failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law. (The instant Complaint does not seek to address the CWC legacy violations. BAC misrepresented both in communications with Nevada consumers and in documents they recorded and filed. repeated. Defendants' deceptive practices have resulted in an explosion of delinquencies These foreclosures have and economy. Defendants lacked authority to collect or foreclose on their behalf and never should have represented they could. as successor in interest to CWC. 42 . BAe engaged in new. only SAC's additional conduct post acquisition. but whose property values have fallen dramatically). or offer assistance. homeowners of their assets (including those who do not have loans originated or serviced by Defendants. Because the trusts never became holders of these mortgages.
it negotiated. 123. The State notified BAC's subsidiaries of these additional grounds of breach by letter on June 1. On December 17. despite its promise that modifications would decrease borrowers' interest rate. BAC's Nevada Directed Deceptive Loss Mitigation And Foreclosure Practices 124. As the Nevada commenced discovery. 2011. a multi-state settlement of charges that CWC had engaged in widespread consumer fraud in its origination. and servicing practices. including requirements that borrowers submit full applications for modifications under the Consent Judgment. Nevada amended its complaint to include violations of the Consent Judgment. The State of Nevada resolved its claims by entering into the Consent Judgment with CWC on February 24. 122. on CWC's behalf. but the violations have neither been corrected nor satisfactorily explained. There was also evidence that BAC's subsidiaries increased the interest rate (and payments) of some borrowers who received modifications under the Consent Judgment. On January 19. Soon after BAC acquired CWC. BAC has violated the Nevada DTPA by misleading consumers in connection with BAC's loss mitigation and foreclosure programs. it found in BAC's policies and procedures practices that constituted additional. serious violations of the Consent Judgment. the State of Nevada filed the instant action against BAC and its subsidiaries alleging violations of the DTPA for their deceptive loss mitigation and foreclosure practices. As alleged in the Nevada Complaint. despite its promise of "streamlined" modifications. Nevada seeks to terminate the Consent Judgment on the grounds provided that BAC has materially failed to live up to its obligations thereunder. 43 . 2009. 2010. a.121. 2011. marketing. Based on the provision of the Consent Judgment.
in a pattern and practice of misleading consumers about its mortgage modification program." 128. 127. 44 . typically 30 or 60 days. in which BAC promises that consumers will have an answer on their requests within 30.BAC has engaged. In addition. BAC's website indicates that it will "typically" take 30 to 45 calendar days from the receipt of a consumer's documents to make a decision on a loan modification request. one year. anxiety. and in its interactions with individual consumers. or 90 days. 1. or longer for decisions. 60. These homeowners have suffered delay. These assurances are reinforced in one-on-one conversations between Nevada consumers and BAC representatives. BAC kept Nevada consumers waiting for six months. and continues to engage. in form letters. as well as let you know how the evaluation process works and how long it takes." II BAC sent consumers seeking modifications a document with "Frequently Asked One question asks how long it will take for BAC to process consumers' modification request. attested to by consumers and notes in consumers' servicing files. and often foreclosure while trying to secure an affordable payment that allows them to meet their obligations and keep their homes. 125. Questions. Many consumers have waited six months or even a year and still have not received decisions. The purpose of contacting you is to confirm receipt of your information. 126. BAC promises on its website that: "You can expect to hear back from us within 10 business days from when we receive all your required documents. Misrepresentation of the Time for Deciding Consumers' Modifications On its website. BAC repeatedly promised consumers answers on their modification requests within a specific time frame. The answer: "up to 45 days. Despite its representations.
BAC consistently has lost consumers' documents. but extremely trying for homeowners who do not know from day to day whether they will get help or lose their homes. 131. and only upon calling BAC. Many homeowners found out that their documents were missing or incomplete months after they submitted their modification requests. In many instances. modification. BAC knew. three-month trial tier framework was created. or decisions by a specific date or within a set number of days. BAC told consumers that documents were missing after previously assuring them. 130. 132. They were promised calls or letters with updates. One critical source of delay is BAC's routine loss of consumer documents. sometimes more than half a dozen times-the same documents. Pursuant to the Home Affordable Loan Modification Program ("HAMP"). which almost never came. BAC has routinely failed to notify consumers of missing documents. causing delays while consumers re-sent. While waiting for answers. BAC Misrepresented to Nevada Homeowners that their Trial Modifications would be Converted to Permanent Modifications if they made their Trial Payments. 2. This long waiting period is not only inconsistent with BAC's oral and written commitments to consumers.129. Homeowners who make each of the three payments on time will receive 45 . a two Borrowers first must qualify for an initial. often repeatedly. Consumers were deceptively denied modifications because of "missing" paperwork that BAC actually received. that its statements were false because its employees were aware that consumers often suffer delays of more than three months while waiting for action on their modification requests. Instead. including collection calls. that their files were complete and under review. or should have known. consumers called BAC regularly to check on the status of their modification requests. many received multiple foreclosure-related communications.
One Nevada homeowner made six He then received documents for a different loan modification. and report being confused about what to do when they reached the fourth month but have not heard from BAC.permanent modifications. you will receive a Modification Agreement defining the changes. your modification will be officially made permanent. "If you make all of your trial period plan payments and return any additional documents that may be required. 134. BAC made unequivocal promises that homeowners who successfully completed trial modification would receive permanent modifications. he was told that he would have to restart the modification process and complete another trial period before receiving a permanent 46 ." 133." BAC did not advise consumers that they would wait six months or more. When he called BAC for an explanation. BAC's trial modification offer assured homeowners. "If you successfully make all your Trial Period Plan payments. and b. that they would receive a permanent modification within a month of completing their trial period. "If you successfully make your Trial Period Plan payments during the trial period. In that regard. BAC's website again confirmed its oral representations: "Your trial period will last 3 or 4 months." payments on his first trial modification. Homeowners received three payment coupons with their modification agreement. Some homeowners called BAC and were told at that time. After this document has been signed. the BAC website represented: a. you may receive a Modification Agreement. notarized and returned to us. depending on your circumstances. or were told at the time the trial modification was offered. BAC also led homeowners to believe that it would convert them to permanent modifications after three or four months of a trial period.". you will be approved for a permanent modification of your loan.
Upon receiving these communications. which oversees HAMP. that its promises that it would make decisions on permanent modifications within a month of completing their trial modifications was deceptive. discussed the fate of borrowers in failed trial modifications who "even in circumstances where they never missed a payment. 135. . 137. This promise was reinforced by commitments on SAC's website. Although homeowners benefit from temporarily lower payments during their trial modification." SAC represented to homeowners that their homes would not be sold while they were awaiting decisions on their modification requests or on modification plans. thus resulting in the very loss of their homes that HAMP is meant to prevent. and knew that many consumers waited more than four (or even six or nine) months for their modifications to be made permanent (or declined). consumers who are not converted to a permanent modification may end up worse off. Under "Frequently Asked Questions. 138. After he made those payments. the same homeowner received yet another trial modification with different terms. may face back payments.. or should have known. SAC knew. Foreclosures of Nevada Homes while Modifications were Pending Homeowners waiting for decisions on their modifications often received foreclosure-related notices from SAC.modification. penalties. and their homes will not be sold while their modification requests were pending." 3. In his most recent report. and even late fees that suddenly become due on their modified' mortgages and that they are unable to pay. SAC repeatedly and deceptively assured Nevada consumers that they should not worry. many consumers called the number provided by SAC on the notices to find out what they mean. 136. 47 .. their modifications are still in review. SAC tracked the "age" of trial periods. the Inspector General of the Troubled Assets Relief Program.
Interviews with former BAC call center employees indicate that foreclosures while consumers were awaiting decisions on their modifications were common. for six months. However. He continued to pay both his first and second mortgages with BAC in full while he waited for a decision on his request. In some cases. BAC does not disclose that even consumers making full payments may be the subject of negative reporting. who suffered a heart attack that caused him to incur substantial medical expenses and a loss in his income. Bank BAC has pursued or completed foreclosures while homeowners were awaiting decisions upon loan modifications. BAC reported to credit agencies that he was delinquent on his loans. BAC notified credit agencies that homeowners were in default when BAC indicated on its website that consumers in trial modifications would be reported to the credit agencies because they are not making their full. 4. harder and more expensive for consumers to obtain credit. Reporting to Credit Agencies In addition. Its employees regularly encountered consumers whose homes were wrongfully foreclosed while their modifications were still under review. original mortgage payment. Despite being current. 139. homeowners incurred foreclosure fees even though the foreclosure process should never have started or proceeded. Such false credit reports make it In addition.Despite such assurances. However. misrepresenting the delinquency status of consumers' loans allows BAC to impose late fees and other charges to which it is not entitled and which make it even harder for a consumer to remain or become current on their mortgages. BAC knew or should have known that its statements were false and misleading. applied to BAC for a modification even though he was current on his mortgage payments. One Las Vegas homeowner. Nevada alleges that such misrepresentations about the consumer's 48 . he also received a Notice of Intent to Accelerate. they were not.
141. even though consumers had repeatedly sent 49 . In cases reviewed by Nevada the Attorney General's Office. the consumer's income was insufficient to support the modified payment.0923(3). the borrowers In by BAC for denying modifications were inaccurate and misleading. the failure to make payments or to accept previous modification. 140. and. a previous modification. the reasons offered BAC told consumers that it However. the inability to reach the consumer or to obtain missing documents needed to review the request. as a result. Stat. that consumers need not be BAC's Website notes: "Ifyou've suffered a hardship delinquent to be eligible for a modification. and federal rules require. and the homeowner was current on his mortgage payments. 15 U.C. and often by phone. the reasons that their requests for modifications were denied. noted that they were unable to reach their assigned contacts. the DTPA. 5. Nev. Rev. commonly cited reasons for denying Nevada consumers' applications were: the claims that the owner of the loan with authority to approve the modification would not permit the modification. had denied their modifications because it was unable to reach them. none of these consumers reported ever receiving calls from BAC but. BAC claimed that it was missing documents. regularly called BAC to obtain updates on their status and/or resubmit their documents. that is affecting your ability to make your mortgage payments or have already missed a payment. addition. Eligibility for and Denials of Modifications BAC represents publicly. you may be able to receive a more affordable mortgage payment under the Home Affordable Modification Program. instead. § 598.S. II Yet BAC's representatives frequently advised consumers that they must BAC told consumers. even after multiple attempts. by letter Among the miss payments in order to be considered for loan modifications. In other cases.payment status violate the Fair Debt Collection Practices Act ("FDCPA"). §§ 1692e(2)(A) & (8).
only certain types of loans can be modified or certain types of modifications made. Stat. Changing the Terms of Modifications. but then notified them that they had never received modifications. this news came only after consumers had made several payments. BAC misrepresented whether and on what terms their modification requests had been approved. claiming that a consumer previously received a modification when the consumer had instead rejected a modification based on inaccurate income figures. Nev. BAC notified consumers that their modifications were declined by the investors in instances where BAC had full authority.086. the investor or owner of the loans delegates to BAC full authority to make modification decisions consistent with the investor's best interest. or Ignoring or Repudiating Existing Modifications. BAC rejected other modifications for the stated reason that the consumer had failed to make her payments during a three month trial modification when. In some instances. In other cases. Rev. BAC's authority to offer modifications is defined by the Pooling and Servicing Agreement ("PSA") that governs the servicing of specific pools of loans. 2009. the consumer had made (and BAC had cashed) all of her payments. in fact.in their documents and/or were told by BAC that their files were complete and being reviewed for modifications. For consumers who were able to secure modification commitments. 144. 6. Under some PSA's. BAC told consumers that their modifications had been approved. Failing to Deliver Promised Modfflcations. passed by the Nevada Legislature on May 22. § 107. 142. BAC denied a loan modification. to offer modifications. allows homeowners who receive Notices of Default to participate in a pre-foreclosure mediation 50 . 143. Often. Other investors do not permit modifications or require BAC to seek approval before offering modifications. without the investors' approval.
of the deed of trust or Participation in good faith in the mediation is prerequisite to moving forward with the foreclosure. assigned If a homeowner sends in the required election form. Rev. BAC did not provide the consumer the promised modification agreement. BAC also explained 51 .086(2)(c)(2) (requiring a certification under Nev. Stat. Rev. after repeated calls. On one suggested she re-start the application process. When she called BAC to follow up. finally provided the agreement. mediators issued findings that BAC acted in bad faith. a BAC representative She submitted the documents and kept calling.086(7).with their servicers.086(2)(a)(3) (requiring a trustee to send with every Notice of Default a form where the homeowner "may indicate an election to enter into mediation"). BAC told one recently widowed. As a result. § 107. which requires BAC representatives repeatedly failed to appear at assigned the parties act in "good faith"). its terms were materially different than those offered at the mediation. In one case. Stat. the representative said her file was still being reviewed and told her to send in updated financial information. mediation dates or did not have the documents or negotiating authority required by law. Nev.086(4) (requiring the servicer to bring "the deed of trust. call. For example. Stat. Stat. Rev. 145. § 8107. A number of consumers were promised modifications on a set of terms worked out with (and witnessed by) the mediators. the servicer must appear at an date with all required documents and the authority to negotiate an mediation appropriate agreement with the borrower. in a number of instances. the mortgage note and each assignment mortgage note" and "have authority to negotiate a loan modification"). Rev. The homeowner never received the documents. elderly Las Vegas homeowner at her mediation that she was approved for a trial modification and promised to send her the modification agreement in two to four weeks. See Nev. BAC offered a modification at mediation and promised to send the consumer an agreement reflecting its terms. Nev. § 107. When BAC. § 5 107.
149. BAC has been ordered to reinstate and pay the employee approximately $930. restitution and a declaration that the Consent Judgment is had found that BAC had violated the whistleblower protection provisions of the Sarbanes-Oxley Act. For example. 148. BAC provided modifications to consumers and then either attempted to revoke such modifications or failed to honor their terms. In June 2010. 147. my blood pressure. my state of mind could not stand another 3 months.that an employee had failed to enter the results of the mediation into her account. or however long it would have taken of living in fear of thinking this might be the day or the week I lose my home. which includes back wages." 146.C. G. interest. vacated. It was reported that the U. in violation of the whistleblower protection provisions of the Sarbanes-Oxley Act for improperly firing an employee. compensatory damages and attorney fees. "my nerves. HAC Engages in Termination of Employee Who Investigated Mortgage Wrongdoing On September 14. BAC's promises of modifications that it failed to provide or refused to honor constitute a deceptive practice. unmodified payments. Department of Labor's Occupational Safety and Health Administration has found Charlotte. 6 months.000. BAC offered the homeowner a permanent modification increasing her payments to more than half her income.-based Bank of America Corp. though consumers signed modification agreements. She accepted the modification despite the financial strain because. N. The findings 52 . The homeowner received multiple foreclosure notices. BAC failed to implement their terms and continued to seek to collect the original. as she explained. 2011 the United States Department of Labor announced that it Nevada seeks fines.S.
1 on behalf of and for the benefit of BAC. water. It was reported that the employee originally worked for CWC which merged with BAC in July 2008. BAC continued on its course to sweep the wrongdoing under the rug and failed to come clean." added Michaels." 153. 53 . "This case highlights the importance of defending employees against retaliation when they try to protect the public from the consequences of an employer's illegal activities. 150. mail and bank fraud involving CWC employees. 152. Thus. David Michaels. "This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same. "Whistleblowers playa vital role in ensuring the integrity of our financial system. BAC has announced that it refused to accept the decision and will appeal." said OSHA Assistant Secretary Dr. The employee alleged that those who attempted to report fraud to CWC's Employee Relations Department suffered persistent retaliation. rather than take the allegations of wrongdoing to heart and fixing what was wrong." 151. as well as the safety of our food. air. The employee led internal investigations that revealed widespread and pervasive wire. Plaintiff brings this action as a derivative action pursuant to Federal Rules of Civil Procedure 23. workplaces and transportation systems. which was initiated after receiving a complaint from the Los Angeles-area employee. The employee was fired shortly after the merger. DERIVATIVE ALLEGATIONS 154. "It's clear from our investigation that Bank of America used illegal retaliatory tactics against this employee.follow an investigation by OSHA's San Francisco Regional Office.
Ambani. Jr.155. Brian T. Moynihan. Colbert. Holliday. including the Robo-Signing of foreclosure documents. Bies. The BAC Board was aware of this wrongful conduct as it was known as a result of very wide publicity as to the issues involving the mortgage meltdown and the foreclosure mess. Rossotti. DEMAND IS EXCUSED FOR FUTILITY 156.. the Board. the BAC Board created new ones by permitted management to engage in the continued wrongdoing set forth herein. Mukesh D. as a result of the Rather very extensive due diligence. Since the acquisition of CWC. May. Scully. and has retained competent counsel experienced in this type of litigation to prosecute this action. Monica C. Susan S. than working to resolve these liabilities and ameliorate them. Charles K.. because such a demand would have been a futile and useless act. and Robert W. that BAC had assumed extraordinary potential liabilities. Demand on BAC bring this action has not been made and is not necessary because such demand would be futile. As a result. Powell. BAC and its Board have known. Frank P. Thomas 1. particularly for the reasons listed below. The BAC Board at the time suit was filed consisted of the following twelve Directors: Charles O. Plaintiff will fairly and adequately represent the interests ofBAC in enforcing and prosecuting its rights. being complicit in the conduct engaged in by BAC and exposed to the substantial likelihood of personal liability cannot now fairly assess the propriety of a pre-suit demand. Gifford. Lozano. Virgis W. 157. Jr.D. Charles O. challenging that very conduct. 158. Bramble.. possible violations of the False Claims Act and more. There is more 54 .Sr. Plaintiff did not make any demand on the BAC Board to institute this action Donald E. Paul Jones. refusal to cooperate with federal investigators.
if they 55 . or (c) engaged in acts. 159. which they knew or deliberately disregarded were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made. COUNT I (For Violation of §10(b) of the 1934 Act and Rule 10b-5 Against the Class Action Individual Defendants) 160. 161. the Class Action Individual Defendants disseminated or approved the false statements specified above. in light of the circumstances under which they were made. During the Class Period. Defendants violated § 1O(b) of the 1934 Act and Rule 10b-5 in that they: (a) (b) employed devices. not misleading. and cannot independently suit thereon. made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made. practices and a course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of BAC common stock during the Class Period. Class Plaintiff and the Class have suffered damages in that. as set forth herein. schemes and artifices to defraud.than reasonable doubt as to whether the BAC board could exercise independent business judgment to allow this suit to go forward under these circumstances. not misleading. 162. in light of the circumstances under which they were made. Plaintiff and the Class would not have purchased BAC common stock at the price they paid. they paid artificially inflated prices for BAC common stock. or at all. in reliance on the integrity of the market. The Board is also disabled to act as it is directing the defense of litigation consider bringing involving the same allegations.
loyalty and due care. Each of the Class Action Individual Defendants had actual or constructive knowledge that they had caused BAC to improperly misrepresent the business and prospects of the Company. 56 . Plaintiff incorporates Duty) by reference and real leges each and every allegation contained above. oversight. obligations. The Class Action Individual Defendants owed and owe BAC fiduciary By reason of their fiduciary relationships.had been aware that the market price had been artificially and falsely inflated by defendants' misleading statements. reasonable inquiry. These actions could not have been a good faith exercise of prudent business Moreover. as though fully set forth herein. then the Class Action Individual Defendants are liable to the Company for contribution. judgment. good faith and supervision. these Individual Defendants are liable to the Company. As a result of the misconduct alleged herein. the Class Action Individual Defendants owed and owe BAC the highest obligations of good faith. fair dealing. certain of the Class Action Individual Defendants are asserted to have engaged in the actions alleged in the Class Action. If BAC is liable to the Class in the Class action securities Action. loyalty. These Defendants breached their fiduciary duties of care. SECOND CAUSE OF ACTION (Against the Class Action Individual Defendants for Breach of Fiduciary 164. 165. which would be a breach of their duty to conduct the business of the Company only through lawful and proper means. As a direct and proximate result of the Class Action Individual Defendants' misconduct. 167. 168. 163. 166. BAC has suffered and will continue to suffer significant damages.
including accurate and truthful information with respect to the Company's business. they each had a duty to disseminate truthful information promptly that would be material to investors in compliance with the integrated disclosure provisions of the SEC regulations. complete and accurate information. directors have a fiduciary duty to shareholders to exercise due care. 57 . communications Moreover. or participation in the making of affirmative statements and reports to the investing public. so that the market prices of the Company's publicly traded securities would be based on truthful.THIRD CAUSE OF ACTION (Against The Class Action Individual Defendants for Breach of the Duty of Full Disclosure and Complete Candor) 169. In addition to the duties of full disclosure imposed on the Class Action Individual Defendants as a result of their making affirmative statements and reports. When directors communicate publicly or directly with shareholders about corporate matters the sine qua non of directors' fiduciary duty to shareholders is honesty. good faith and loyalty. Plaintiff incorporates by reference all previous allegations. 172. with or without a request for shareholder action. 171. 170. a fiduciary who learns that her earlier to her beneficiaries were false and nonetheless knowingly and in bad faith remains silent even as the beneficiaries continue to rely on those earlier statements also breaches his duty of loyalty and of full and fair disclosure. Whenever directors communicate publicly or directly with shareholders about the corporation's affairs. Each of the Class Action Individual Defendants has breached his/her duty of full the falsity and disclosure and complete candor by knowingly and/or recklessly disregarding misleading nature of the information which they caused it to be disseminated to the investing public.
loyalty and due care. good faith and supervision. By reason of their fiduciary relationships. reasonable inquiry. loyalty. FOURTH CAUSE OF ACTION (Against the BAC Director Defendants for Breach of Fiduciary Duty) 174. fair dealing. 178. and these Individual Defendants are liable to the Company. As a direct and proximate result of the Individual Defendants' misconduct. 176.173. Plaintiff incorporates by reference and realleges each and every allegation set forth above as though fully set forth herein. PRAYER FOR RELIEF 58 . As a direct and proximate result of the Class Action Individual Defendants' breach of full disclosure and complete candor. The BAC Director Defendants owed and owe BAC fiduciary obligations. Based on their failure to properly act. Each of these Defendants had actual or constructive knowledge that they had caused BAC to engage in wrongful conduct. JURY DEMAND 179. Plaintiff demands a trial by jury. BAC has suffered and will continue to suffer significant damages. these Individual Defendants are liable to the Company. BAC has sustained significant damages arising out of the alleged material misstatements to the investing public. 175. these Defendants breached their fiduciary duties of care. oversight. 177. the Individual Defendants owed and owe BAC the highest obligations of good faith. As a result of the misconduct alleged herein. and their decisions or non-decisions could not have been a good faith exercise of prudent business judgment.
. E. Paskowitz (A member of the Bar of this Court) 60 East 42nd Street 46th Floor New York.~~~. Equitable and/or injunctive relief as permitted by law. Against the Class Action Individual Defendants for contribution pursuant to Sections IO(b) and 2I(D) of the Exchange Act. as set forth herein. Dated: New York.~~~~-- (A member of PAS KOWITZ & ASSOCIATES Laurence D. New York 10165 Telephone: (212) 685-0969 59 . D. New York 10165 Telephone: (212) 867-1156 Facsimile: (212) 504-8343 ROYJA. 2011 By: the B IS CO Roy L. Attorneys' fees and costs. New York September 26. and Any such other and further relief as may be just and proper. B. C. Restitution and disgorgement of unjust enrichment. F.WHEREFORE. Jacobs 60 East 42nd Street 46th Floor New York. Against all of the BAC Director Defendants for the damages sustained by BAC as a result of the breaches of fiduciary duty.. plaintiff prays for judgment as follows: A.
. Jacobs and Roy Jacobs & Associates Attorneys for Plaintiff 60 . Facsimile: (212) 685-2306 Attorneys for Roy L..
avers that as plaintiff herein he verifies that he has reviewed. . under pain and penalty of perjury under the laws of the United States. knowledge and belief. the foregoing Verified Shareholder's Derivative Complaint.VERIFICATION Richard Delman. and that the allegations are true and correct to the best of his information.