New York and Delaware Attorneys General Permitted to Intervene in Bank of America Settlement Approval Proceeding

On November 18, 2011, U.S. District Judge William H. Pauley III of the Southern District of New York granted the requests of the attorneys general of New York and Delaware to intervene in the proceeding seeking approval of an $8.5 billion settlement between Bank of America Corp. and the Bank of New York Mellon, as trustee for several trusts that issued Countrywide Financial Corp. RMBS certificates. The Court found that the intervention of the state AGs would protect the interests of absent investors. In the same order, the Court denied requests to intervene brought by four individual homeowners who are obligors on mortgages owned by one or more of the trusts covered by the proposed settlement agreement. The Court found that the homeowners lacked a direct financial interest in the outcome of the case and could not establish any potential prejudice they might suffer by not being permitted to participate in the settlement approval proceeding. Order.

SDNY Judge Rejects Proposed SEC-Citigroup Settlement

On November 28, 2011, U.S. District Judge Jed S. Rakoff of the Southern District of New York refused to approve a proposed settlement between the SEC and Citigroup Inc. in connection with Citigroup’s alleged shorting of RMBS that it marketed and sold to the public on the grounds that the settlement was “neither fair, nor reasonable, nor adequate, nor in the public interest.” The settlement involved the payment of a total of $285 million by Citigroup, as well as the imposition of certain injunctive measures against Citigroup. In rejecting the settlement, Judge Rakoff stringently criticized the SEC’s policy – “hallowed by history, but not by reason” – of allowing settling defendants to neither admit nor deny wrongdoing because it “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.” He stressed that the exercise of judicial power and authority that does not rest on facts cannot serve the public interest because it “is worse than mindless, it is inherently dangerous.” Judge Rakoff consolidated the action with a related matter filed by the SEC against a Citigroup employee and directed the parties to be ready to try the case beginning on July 16, 2012. Order.

NCUA Settles with Citigroup and Deutsche Bank in RMBS Dispute

The National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, reached a $145 million settlement with Deutsche Bank and a separate $20.5 million settlement with Citigroup, stemming from the banks’ sales of RMBS to five failed credit unions. The NCUA did not file a lawsuit against either Citigroup or Deutsche Bank, although the NCUA currently has RMBS suits pending against three other financial institutions. Press Release 1. Press Release 2.

FHFA Inspector General Criticizes FHFA’s Approval of Freddie’s Settlement with BofA

On September 27, 2011, the Office of the Inspector General for the FHFA (“OIG”) released a report criticizing the FHFA’s approval of Freddie Mac’s $1.35 billion settlement of mortgage repurchase claims against Bank of America. The OIG found that significant concerns about the reliability of Freddie’s loan review processes should have alerted the FHFA to the risk that these deficiencies skewed its analysis of the risk of loss to Freddie and, therefore, its ability to fairly assess the settlement. OIG Report.

Institutional Investors Question AIG’s Motion to Intervene in Proposed BofA Settlement

On August 15, 2011, the institutional investors that negotiated the proposed $8.5 billion settlement with Bank of America regarding representations and warranties claims against Countrywide Financial Corp. filed a response to AIG’s motion to intervene and oppose the settlement. The institutional investors did not object to AIG’s intervention, but urged the court to carefully scrutinize AIG’s objection, pointing to AIG’s failure to disclose a simultaneously filed individual securities lawsuit against BofA as evidence that AIG is improperly attempting to advance its own interests ahead of those of other certificate holders. Investors’ Response.

Delaware AG Joins New York AG In Challenging $8.5 Billion Bank Of America Settlement

Delaware Attorney General Joseph “Beau” Biden III moved on August 9 for leave to intervene in the court proceeding brought to approve Bank of America’s $8.5 billion settlement with holders of Countrywide Financial Corp.’s mortgage-backed securities. The Delaware AG challenges the fairness of the settlement, expressing concerns about the impact of the proposed settlement on the rights of the Delaware state pension funds. Motion.

New York Attorney General and Other Parties Move to Intervene in the Bank of America and Bank of New York Mellon Settlement

On August 4, 2011, New York Attorney General Eric T. Schneiderman moved to intervene in the June 29, 2011 settlement between Bank of America and Bank of New York Mellon (“BNYM”), the trustee for 530 trusts created by Countrywide entities. The Attorney General argued that the settlement should not be approved because it was negotiated by BNYM and Bank of America, without input from other beneficiaries who would also be bound by the settlement. According to the Attorney General, he moved to intervene to protect the marketplace, the interests of New York investors, and the Attorney General’s own ability to pursue claims against BNYM, Countrywide, Bank of America, and affiliated entities. NYAG Motion to Intervene.

The Attorney General also attached a proposed pleading to his motion to intervene that described the proposed settlement as “unfair” and included counterclaims against BNYM for breach of fiduciary duty and violations of state anti-fraud statutes, including the Martin Act. These causes of action arise out of BNYM’s alleged failure to properly transfer loans from Countrywide to the trusts and its failure to notify certificateholders of Countrywide’s delivery of incomplete mortgage files. NYAG Proposed Pleading in Intervention.

A few days earlier, on August 2, 2011, Cranberry Park, who allegedly owns securities in 28 of the 530 trusts at issue, also moved to intervene, arguing that BNYM may not adequately represent its interests in the settlement. If the judge grants these motions to intervene, the Attorney General and Cranberry Park will become parties to the settlement proceedings before the New York Supreme Court. Cranberry Park Motion to Intervene.

Investment Company Sues Bank of America Claiming Recently Announced Proposed $8.5 Billion Settlement Proves Fraud

On July 18, 2011, Federated Investment Management Co. and affiliated entities sued Bank of America, Countrywide, affiliated entities, and individual officers and directors in California state court. Plaintiff claims that Bank of America’s recently announced proposed $8.5 billion settlement with various MBS investors and Bank of New York Mellon as Trustee evidences that Countrywide fraudulently concealed the quality of the loans it originated. Specifically, the complaint alleges that Countrywide’s underwriting standards and guidelines failed to meet industry standards and that it misrepresented that fact to investors. While the plaintiffs allege they do not have access to the loan files underlying the securities they purchased, they assert that the disclosure of the proposed settlement and challenges by investors and regulators have uncovered Countrywide’s alleged fraud. Plaintiff brings claims for fraud and negligent misrepresentation, as well as claims under the Securities Act of 1933, the California Corporate Securities Act, and the California Civil Code, and seek both compensatory and/or recessionary damages, as well as punitive damages. Complaint.

Challenges Mount to Bank of America’s Proposed $8.5 Billion Settlement

Numerous investor groups, regulators and politicians have challenged Bank of America’s June 29, 2011 announcement proposing an $8.5 billion settlement of claims based on representations and warranties made by Countrywide in RMBS securitizations. Between July 5 and July 13, four separate groups of investors each moved to intervene in the Article 77 proceeding brought by Bank of New York Mellon, as Trustee or Indenture Trustee of the various securitization trusts, seeking judicial approval of the settlement. Potential objections have been voiced to the size of the settlement, potential conflicts of interest, and a failure to provide sufficient information to evaluate the settlement terms. On July 12, New York Attorney General Eric Schneiderman reportedly sent letters to investors that participated in the settlement negotiations seeking additional information, suggesting that the Attorney General’s office may object to the settlement. Representative Brad Miller, a North Carolina Democrat, raised additional questions about the terms of the settlement in a July 8 letter to the Federal Housing Finance Agency. Walnut Place Motion to Intervene. Pension Fund Motion to Intervene. TM1 Motion to Intervene. FHLB Motion to Intervene. Miller Letter.

Morgan Keegan Settles with the SEC For $200 Million Over Subprime MBS Fraud Charges

On June 22, 2011, the SEC announced that securities brokerage firm and investment manager, Morgan Keegan & Co. and Morgan Asset Management, agreed to a $200 million settlement. The SEC alleged that Morgan Keegan regularly inflated daily quotes in order to increase the net values of five separate RMBS bond funds and ignored lower values for the RMBS reported by the broker-dealers who were trading the securities. According to SEC, the company then sold and redeemed shares of those securities to investors based on inflated net asset values. MK Settlement.