|Two big banks and the entities they acquired are frequent targets in the litany of litigation recently filed by investors against mortgage-related entities.
JPMorgan Chase & Co., in its 10-K annual report filing for 2010, revealed the extent of litigation faced by those in the mortgage industry.
"As of Dec. 31, 2010, the firm and its subsidiaries are defendants or putative defendants in more than 10,000 legal proceedings, in the form of regulatory/government investigations as well as private, civil litigations," stated its filing with the SEC. "The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members."
Possible losses in excess of reserves established for its legal proceedings range from "$0 to approximately $4.5 million as of Dec. 31, 2010," according to its report to the SEC.
JPMorgan's Feb. 28 filing also states: "As a participant in the financial services industry, it is likely that the firm will continue to experience a high level of litigation and regulatory scrutiny and investigations related to its businesses and operations."
Kerry Killinger was the former chief executive officer of Washington Mutual Inc. The Seattle-based firm was the parent of Washington Mutual Bank before it failed and was taken over by JPMorgan in 2008.
This month, Killinger was sued by the Federal Deposit Insurance Corp. The regulator claims Killinger, former chief operating officer Stephen Rotella and the former president of WaMu's Home Loans division, David Schneider, put the company's viability at risk in order to line their own pockets with nearly $100 million in compensation.
Killinger has hired Washington, D.C. lawyer, Brendan Sullivan Jr. as part of his defense team, the Puget Sound Business Journal reported. Sullivan is reportedly a senior partner at Williams & Connolly and previously represented high-profile clients such as the controversial Lt. Col. Oliver North and the late U.S. Sen. Ted Stevens of Alaska.
After Bank of America and Countrywide agreed in February to pay $624 million to settle a suit by various entities, including public pension funds, some plaintiffs withdrew and began filing their own suits.
On Jan. 26, three entities that had opted out of the $624 million Countrywide settlement -- Oregon and Michigan pension and worker funds and the Fresno County [California] Employees' Retirement Association -- filed their own law suits. Under terms of that settlement $22.5 million of the $624 million was set aside to pay plaintiffs who opted out.
Oregon Attorney General John Kroger said the settlement would have netted the state's pension and workers' compensation funds less than $500,000 on $14 million in losses caused by false statements that improperly inflated the prices of Countrywide's stocks and bonds. It is now seeking $1.153 million in its suit which was filed in Oregon's state circuit court.
Michigan State Treasurer Andy Dillon, as custodian of four state pension funds, filed in U.S. District Court of Central California a suit naming as defendants Countrywide Financial, KPMG, Countrywide Securities Corp., Bank of America Securities, 14 other firms that mostly underwrote securities issued by Countrywide, and 17 individuals including Angelo R. Mozilo and David Sambol.
The suit seeks unspecified compensatory, general, special, punitive and exemplary damages for violations of the Securities Act and the Exchange Act and various California codes. The state lost $65 million on investments in securities issued by Countrywide, according to Michigan Attorney General Bill Schuette.
A near-identical suit was filed in the same U.S. District Court by the same attorney group on behalf of The Fresno County association with similar charges against many of the same entities plus Countrywide Home Loans.
In a fourth action, filed in U.S. District Court for the Southern District of New York, 12 other entities that opted out of the settlement, including four affiliated with the Teachers Insurance Annuity Association of America, filed suit against Countrywide Financial, Countrywide Home Loans, Countrywide Home Loans Servicing, Countrywide Securities, Countrywide Capital Markets, Mozilo, Sambol and others
Another case was filed in Manhattan federal court against Bank of America Corp. on March 22, according to plaintiffs' counsel Criden & Love P.A. The securities class action impacts investors who bought the company's common stock between July 1, 2008, and Oct. 19, 2010.
In addition to BofA, the complaint lists Chief Executive Officer Brian T. Moynihan and three other individuals as defendants.
And in yet another class action suit involving BofA, the New York State Common Retirement Fund in January settled a securities fraud law suit against Merrill Lynch & Co. for $4.25 million after opting out of a similar class action suit. The office of State Comptroller Thomas P. DiNapoli, in announcing the settlement, said the fund was "misled about the extent of Merrill Lynch's participation in the subprime mortgage fiasco," which he called "unacceptable."
Others that withdrew include BlackRock Inc., Calpers, T. Rowe Price Group Inc., and the Teacher Retirement System of Texas, according to court documents.
A $6.5 million settlement of a predatory lending case against former Countrywide officers Mozilo and Sambol, filed in 2008 by then-California Attorney General Edmond G. Brown Jr., will be used to establish a statewide California Foreclosure Crisis Relief Fund that will provide grants to agencies that help homeowners facing foreclosure with relocation assistance and provide funds to state and local agencies to prosecute mortgage fraud, current Attorney General Kamala D. Harris announced on Feb. 2.
In a class action complaint filed Feb. 24 in U.S. District Court for the Southern District of New York, Bank of America and its CEO, Brian T. Moynihan, and other officers are charged with violations of the Securities Exchange act by concealing from investors its use of "dollar rolling," a practice whereby it would move MBS off its books to another entity, but agree to repurchase the MBS after reporting its quarterly financial statement. These transactions, according to the suit, were classified as "sales," "when in reality the transactions were a form of secured borrowing. The suit was filed on behalf of purchasers of BofA common stock and options.
Lender Processing Services also has been a target of legal action.
In a class action suit filed Jan. 10 in U.S. District Court for the Middle District of Florida, the Southwest Ohio District Council of Carpenters, the lead plaintiff, charged LPS with violations of federal securities laws, alleging that the firm "fraudulently inflated LPS's stock price by executing numerous false documents, and engaging in improper and deceptive foreclosure-related activities," including "robo-signing."
Similar charges against LPS as a nominal defendant were made in a suit filed March 23 in Chancery Court of the state of Delaware by the International Brotherhood of Electrical Workers Local 164 Pension Fund.
In three separate actions, the SEC has charged two former Colonial Bank officials and one former Taylor, Bean & Whitaker Mortgage Corp. official with allegedly enabling the sale of $1.5 billion in fictitious and impaired mortgage loans and securities from Taylor, Bean & Whitaker Mortgage Corp., Colonial's largest customer, to Colonial Bank.
Named in the March 2 and March 16 actions were, respectively, Catherine L. Kissick, former vice president at Colonial Bank, and Teresa A. Kelly, former operations supervisor of Colonial's mortgage warehouse lending division. Former Taylor Bean treasurer Desiree E. Brown plead guilty on Feb. 24.
However there have been recent victories by defendants in several cases.
Bond insurer MBIA Inc. received a ruling from the Appellate Division of the New York State Supreme Courts that its restructuring plan was legal. That plan, which was challenged by ABN AMRO Bank and others, segregates MBIA's policies covering mortgage and other structured securities from the firm's municipal bond obligations, which would be insured by anew subsidiary. Plaintiffs argue that this action leaves those securities with inadequate funds to pay any claims. The New York State Court of Appeals is to next hear the case.
The Royal Bank of Scotland won, in U.S. District Court, the dismissal of a suit by investors who experienced losses when the bank wrote down mortgage securities.
North Carolina Superior Court dismissed two suits filed by shareholders against Wachovia Corp.
And a securities fraud class action lawsuit filed last Nov. 18 was dismissed when the lead plaintiff withdrew.