Articles Posted in Bank of America

US District Court Judge William Pauley III has approved a $335M settlement in a securities fraud case against Bank of America (BAC). This one of the largest class action settlements involving securities buyer claims related to the 2008 financial crisis. Among the investors that will be able to avail of the settlement are the Pennsylvania Public School Employees’ Retirement System (PSERS), the Anchorage Fire and Police Retirement Fund, the Arkansas Teacher Retirement Fund, a number of asset managers, and two trade unions.

PSERS served as lead plaintiff for those that purchased the bank’s common stock or common equivalent securities on a US public exchanges and later sustained losses between 2/27/09 through 10/19/10. According to a PSERS Spokesperson, the Pennsylvania retirement plan lost approximately $8M of its holdings with Bank of America.

The mortgage-backed securities case accused Bank of America of misleading investors about the position it took in MBSs and of hiding debt. They also claim that the bank compelled them to purchase Bank of America stock that was sold to pay back $45B of federal bailout funds from TARP. The plaintiffs alleged that the bank was aware that it could not raise enough capital to avoid TARP restrictions on executive salaries if it were to disclose that it might have to buy back billions of dollars of securities that were backed by high-risk loans.

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The 1st U.S. Circuit Court of Appeals in Boston has resuscitated Tutor Perini Corp.’s (TPC) securities fraud lawsuit against Bank of America (BAC). Circuit Judge Ojetta Rogeriee Thompson said that a district court judge made a mistake when tossing the Massachusetts and federal securities claims accusing the bank of selling the construction company millions of dollars in auction-rate securities that it knew were about to fail.

Tutor Perini, which is estimating over $50M plus interest in losses, claims that Bank of America persuaded it to purchase ARSs prior to the financial crisis, toward the end of 2007 and the beginning of 2008, even though it knew that the securities were on the brink of becoming illiquid. It was in February 2008 that the dealer stopped supporting the $330B ARS market, leaving investors with debt that was illiquid—debt that they had been reassured time and again was liquid, like cash. Instead, investors were unable to access their funds.

In 2015, the district court judge dismissed Tutor Perini’s ARS fraud case, noting that Bank of America did not have the “duty” to reveal every fact about the risks involved to the construction company and that the bank had, in fact, already made a number of disclosures. Judge Thompson, however, said that because the ARS market was failing, this might have meant that Bank of America now had the duty to warn about the new risks, including those involving its earlier recommendations. Thompson noted that a jury could very well find that as the bank had sought to protect itself from the ARS market, it pushed the construction company toward greater exposure.

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Former Fannie Mae CEO Settles SEC Charges for $100K
Daniel Mudd has agreed to pay $100K to settle Securities and Exchange Commission charges accusing the ex-Fannie Mae CEO of misleading investors about the degree to which the mortgage company was exposed to subprime loans leading up to the 2008 economic crisis. The regulator had filed its civil case against Mudd and two other Fannie Mae executives in 2011. The latter two settled with the Commission last year.

Mudd maintains he did nothing wrong.

WL Ross Resolves Fee-Allocation Disclosure Charges
WL Ross & Co. will reimburse specific WL Ross funds about $11.8M to resolve SEC charges related to its fee allocation practices and disclosures. The firm will also pay a $2.3M civil penalty.

According to the SEC, WL Ross was given transaction fees by portfolio companies. This lowered the management fees that funds had to pay the firm. The regulator points to WL Ross’s limited partnership agreements that were unclear regarding fee offsets when multiple funds and other co-investors share ownership.

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The U.S. Attorney for Manhattan’s Southern District is asking the Second Circuit Court of Appeals to look at a ruling that overturned the jury verdict that held Countrywide Home Loans liable for mortgage fraud. Countrywide, which is now owned by Bank of America (BAC), made billions of dollars on home loans that went into default following the 2008 financial crisis.

It was in 2007 that the mortgage provider introduced a new program, referred to as the “high-speed swim lane,” to process applications for mortgages. Within Countrywide, the program was dubbed the “hustle.”

The program did not include the majority of conditions required to make sure loans would be paid back after Wall Street banks, Freddie Mac, or Fannie Mae sold them to investors. Unfortunately, Freddie and Fannie were not told that these conditions had become more relaxed or that loans no longer met certain criteria. The two mortgage finance firms had tightened their own loan buying requirements and underwriting guidelines. As a result of the loosened restrictions by Countrywide, contended the Justice Department, “rampant instances of fraud” resulted.

Despite the 2013 jury verdict that found Countrywide and a Bank of America executive liable for mortgage fraud, a Second Circuit judge panel overruled the decision. It found that even though Countrywide purposely breached contracts, this was not fraud because the lender had not intended to fool customers at the time that contracts were signed.

Now, U.S. Attorney Preet Bharara wants a Second Circuit panel of judges to consider that Countrywide made false statements when selling loan bundles to customers, including Freddie Mac and Fannie Mae. He said that the court bypassed evidence at trial that showed how the defendants made fraudulent misrepresentations when selling the loans and while the contracts were being executed. Prosecutors are arguing that the language in the contract refers to each mortgage sale during the actual sale and not upon the writing of the contract.

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A U. S. district court judge said that Deutsche Bank AG (DB) must face part of a mortgage fraud case accusing the German bank of bilking investors who purchased over $5.4M of preferred securities. The plaintiffs, led by two individuals and Belmont Holdings Corp., claim that Deutsche Bank hid its exposure to the subprime mortgage market.

Judge Doborah Batts turned down the bank’s bid to throw out claims related to about $2.55B of securities sold in 11/07 and 2/08. She did, however, dismiss claims involving $2.9B of securities sold in 5/07, 7/07, and 5/08. Investors claim that Deutsche Bank should have notified them in offering documents that it had significant exposure to subprime markets via collateralized debt obligations and residential mortgage-backed securities. They believe that early notification could have prevented them from purchasing the preferred securities before their values dropped, resulting in billions of dollars of losses.

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Megan Messina is suing Bank of America (BAC). She is a managing director at the bank’s structured credit products division. In her lawsuit, Messina claims that the bank tried to get rid of her when she questioned the way some clients were treated and complained about the sexism she allegedly experienced. She also contends that clients such as Citigroup (C) and Blackstone Group LP (BX) were misled by her employer.

According to Bloomberg, in her complaint, Messina provides examples of alleged misconduct at the bank, including coworkers front-running trades made by clients, such as Citigroup, while keeping information from other clients, such as Blackstone. Messina claims that Bank of America apologized to client Anchorage Capital Group after the bank purposely provided the firm with false information. Bank of America also purportedly apologized to Pimco for “doctoring” trading records.

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The U.S. Supreme Court has issued a unanimous ruling allowing investors to sue Bank of America Corp’s Merrill Lynch (BAC) and other brokerage firms in New Jersey state court even though the lawsuit cites federal laws. The plaintiffs, who are Spectrum Group International Inc. investors, claim that they sustained investment losses because the brokers engaged in illegal short-selling. They are invoking NJ’s RICO statute in their case. RICO is the Racketeer Influenced and Corrupt Organizations Act. It is a federal law that allows for victims of organized crime to seek civil damages. It also provides provisions for other extended penalties. Bank of America Merrill Lynch claims that this naked short selling case is meritless.

The plaintiffs are accusing Merrill Lynch and other broker-dealers of playing a part in causing Spectrum’s market capitalization to drop by $800M in 11 months. The investors said that the firms did this by helping naked short sellers who bet against the company, causing its share price to plunge.

Naked Short Sales
A short sale involves the use of borrowed shares to bet that a security’s price with drop. The short sale is naked if the trader doesn’t borrow the shares required to make the transaction happen. Under Regulation SHO, naked short sales cannot be used to manipulate a security. Still, lawsuits over illegal naked short selling haven’t done too well in federal court.

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Bank of America to Pay Federal Home Loan Bank of Seattle $190M
Bank of America Corp. will pay $190M to resolve mortgage-backed securities fraud charges brought by the Federal Home Loan Bank of Seattle. The SEC filing stated that the settlement was reached last month and that most of it was previously accrued. The lawsuit alleged misstatements and omissions during the issuance of MBSs.

It was just earlier this year that Bank of America’s Merrill Lynch and 10 other banks agreed to pay over $63M to resolve accusations that they misrepresented residential mortgage-backed securities to the Virginia Retirement System and the state of Virginia.

Judge Approves $270M Mortgage-Backed Securities Fraud Settlement Involving Goldman Sachs
A federal judge has approved the proposed settlement between Goldman Sachs (GS) and lead plaintiff NECA-IBEW Health & Welfare Fund, as well as 400 bondholders and another electrical union pension fund. The Illinois pension fund for electrical workers brought the case in 2008, accusing the firm of leaving out key information and making false statements about the mortgages it sold into 17 trusts the year before.

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Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

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U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

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