Several settlements have been reached with mortgage-related corporations accused of deceiving investors, though court approval has yet to be granted in some cases. Among plaintiffs in investor lawsuits with recent activity were cities, states and the United States. Subsidiaries of Bank of America Corp. were dominant in the latest round of litigious investor actions.
Merrill Lynch & Co. and former executives E. Stanley O’Neal and Jeffreey N. Edwards were named as defendants in a lawsuit filed in U.S. District Court for the Southern District of New York on July 22 by New York Comptroller Thomas P. DiNapoli on behalf of the New York State and Local Retirement Systems and the New York State Common Retirement Fund. Merrill allegedly deceived investors about the degree of exposure it had to subprime mortgage-backed securities.
In addition, Merrill parent Bank of America Corp. was also sued by DiNapoli in federal court in Manhattan. BofA is accused of misrepresentation and concealing material facts when it acquired Merrill Lynch.
An amended complaint was filed on Aug. 31 in U.S. District Court for the Central District of California by the National Credit Union Administration as conservator of Western Corporate Federal Credit Union. The latest filing supersedes a November 2009 complaint.
NCUA claims that 15 former directors and officers of WesCorp breached their fiduciary duties of care and were grossly negligent by concentrating too much of WesCorp’s investments in mortgage-backed securities backed by payment-option adjustable-rate mortgages.
“The complaint also alleges breaches of fiduciary duty and fraud on the part of two former WesCorp officers and unjust enrichment on the part of one former officer in connection with irregular payments from WesCorp’s supplemental executive retention plans,” the statement said.
A motion to dismiss by defendants Morgan Stanley & Co. Inc.; Citigroup Global Markets Inc.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Banc of America Securities LLC; and SunTrust Robinson Humphrey Inc. was granted by the U.S. District Court for the Northern District of Georgia on Friday. A copy of the decision posted by Leagle.com indicates that the plaintiff in the action, Belmont Holding Corp., claims it was misled in a 2008 prospectus supplement to a SunTrust Banks Inc. registration statement about the financial health of the company given the state of the economy.
In U.S. District Court for the Middle District of Florida, Wachovia Bank’s motion to dismiss a lawsuit that was filed by the City of St. Petersburg was granted in July, a copy of the decision posted at Leagle.com said. The case is tied to the city’s investments in failed Lehman Brothers Inc.
Wachovia-parent Wells Fargo Bank, N.A., was sued for $40 million by Sarasota County, Fla., The Clayton Law Firm, P.A., announced in July. The plaintiffs allege Wachovia Bank went against the county’s “conservative investment policies” when $40 million in Lehman Brothers notes and $40 million in MBS were placed in the county’s portfolio.
In July, the Securities and Exchange Commission announced a $75 million settlement with Citigroup Inc. Gary Crittenden, the former chief financial officer at the New York-based company, agreed to pay $100,000. Arthur Tildesley Jr., the former head of investor relations who now heads up cross marketing at Citigroup, agreed to pay $80,000.
The company allegedly misled investors about its exposure to subprime mortgage-related assets.
“Even as late as fall 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk management skills in reducing its subprime exposure to approximately $13 billion,” Robert Khuzami, director of the SEC’s division of enforcement, said in the statement. “In fact, billions more in CDO and other subprime exposure sat on its books undisclosed to investors.”
But the Citi-SEC settlement was held up by a federal judge last month who seeks more documents supporting the agreement. The SEC has since defended the settlement and called for the judge’s approval.
Investors from 48 Citigroup bond offerings were granted approval by a judge in the U.S. District Court for the Southern District of New York to proceed with their lawsuit against Citi, the New York Law Journal reported. The plaintiffs claim Citi neglected to disclose “toxic mortgage-linked exposures.”
More than $38 million in settlements were recently announced in the Metropolitan Securities Litigation by Hagens Berman Sobol Shapiro LLP and Gordon Thomas Honeywell Malanca Peterson & Daheim LLP. The class action was filed in U.S. District Court for the Eastern District of Washington.
A motion by investors in funds from Morgan Keegan & Co. Inc. to remand their lawsuit against Morgan Asset Management Inc. to the Circuit Court for Shelby County, Tenn., was granted by the U.S. District Court for the Western District of Tennessee in June, according to a copy of the decision reported by Leagle.com.
Also that month, U.S. District Judge Samuel H. Mays Jr. in federal court for the Western District of Tennessee set a July 2nd deadline to file motions for lead plaintiffs, Robbins Geller Rudman & Dowd LLP announced. Plaintiffs in that case are investors of some of Regions Morgan Keegan Closed-End Mutual Funds.
U.S. District Judge Dean D. Pregerson in Los Angeles preliminarily approved a $125 million cash settlement for shareholders of New Century Financial Corp. in August, the National Law Journal reported. The agreement calls for New Century’s auditor, KPMG LLP, to pay $45 million. In addition, underwriter defendants will pay $15 million and former officers and directors will collectively pay more than $65 million.
Also last month in federal court in Los Angeles, U.S. District Judge Mariana Pfaelzer gave preliminary approval to a $600 million shareholder settlement with BofA-subsidiary Countrywide Financial Corp., The Daily Transcript reported. Countrywide founder and former chief executive officer Angelo Mozilo is among defendants named.
Two months earlier, a securities fraud lawsuit against Countrywide filed by Monaco-based hedge fund firm SRM Global was dismissed by New York federal court judge Richard Berman, Hedgefund.net reported.
In a lawsuit against Lynda S. Steele, investors of JP & Associates Investment Firm believed the loan officer was using the capital they invested to make real estate purchases. But instead Steele, who also goes by the names Lynda Alvitre and Sengpheth Bounnharaj, used the investments for her company’s expenses and was hit with a $3.6 million judgment in Cumberland County Superior Court, The Fayetteville Observer reported. Steele has since been named in a federal bill of criminal information that was filed on July 29.