Bank Of America Accused Of Hiding Merrill Lynch Losses From Shareholders Before Acquisition

Papers filed in private shareholder litigation accuse top executives at Bank of America Corp of misleading holders of shares and call options about mounting losses and bonus pay outs  just prior to a 2008 vote on its purchase of Merrill Lynch & Co.

The Bank and former Chief Executive Kenneth Lewis said in their own court papers that they should not be liable to shareholders claiming to have lacked information they needed to vote on the $50 billion merger.

Lewis also said the bank’s law firm and chief financial officer advised him that no disclosure was necessary.

“In all cases of securities fraud, the fight is always about who knew what, when,” said Hillary Sale, a law and business professor at Washington University in St. Louis School of Law. “This deposition shows that before the actual shareholder vote, there was knowledge that the numbers were different. Call it large, call it substantial, but it is likely material.”

Andrew Ceresney, a lawyer for Lewis, declined to comment. Court papers said his client relied on the law firm Wachtell, Lipton, Rosen & Katz as to how much to disclose.

The bank in court papers said shareholders failed to show damages as a result of “any alleged impairment to voting rights.” It also said that to the extent it overpaid for Merrill, it is Bank of America that can assert that claim.

Steven Singer, a lawyer for the shareholders, declined to comment.

Merrill’s fourth-quarter loss at the time of the vote was expected to be $9 billion, according to court papers, and ultimately reached $15.84 billion.

The losses caused Bank of America to get a second, $20 billion taxpayer bailout, as their share price dropped 93 percent. The share price remains close to 80 percent below its level prior to the merger.

When Bank of America agreed to buy Merrill on Sept. 15, 2008, the same day Lehman Brothers Holdings Inc went bankrupt, it expected the purchase would dilute earnings by 3 percent in 2009, and be “break even” or slightly better in 2010.

According to court papers, Lewis echoed this forecast at the Dec. 5 shareholder vote. But Lewis testified in the deposition that by this time, the bank believed that the merger would be 13.1 percent dilutive in 2009 and 2.8 percent in 2010.

“That’s a significant change in the dilution and accretion analysis; you would agree with that?” he was asked.

“Yes,” Lewis responded.

The bank’s former treasurer Jeffrey Brown testified that Merrill’s shrinking of its balance sheet, under Bank of America’s orders, could reduce the combined companies’ annual earnings power by $1 billion before taxes, court papers show.

Lewis appeared to resist the thought that the projected $9 billion Merrill loss had a “material” impact on that company’s capital and tangible common equity, which had been $26 billion.

“I would say — I mean, there was an effect,” Lewis said.

“You would agree with me that is a substantial amount?”

“I would say that’s a large amount, yes.”

In a filing, Lewis maintained that he knew of “no red flags” for him to reject the “considered judgment” of the lawyers about disclosing Merrill’s fourth-quarter performance.

Shareholders, however, said Lewis’ sworn statements “leave no genuine dispute” that his statement at the Dec. 5 meeting regarding dilution was “materially false” at the time.

“Reliance on a lawyer’s advice is an interesting argument,” Sale said. “It could give you a defense that you did not intend to mislead, and therefore did not commit fraud. That causes a problem for Wachtell. It could admit it gave that advice, but that raises a specter of malpractice. It’s pretty messy.”

Merrill has more recently aided Bank of America’s results, offsetting losses from mortgages and other litigation.

In 2010, U.S. District Judge Jed Rakoff approved the bank’s $150 million settlement over Merrill with the Securities and Exchange Commission, which included no admission of wrongdoing.

Bank of America, Lewis and Price also face a civil fraud lawsuit by New York Attorney General Eric Schneiderman, under a state law that does not require proof of intent. Schneiderman’s office did not immediately respond to a request for comment.

Lewis retired at the end of 2009 and was replaced by Brian Moynihan, who remains chief executive.

Bank of America shares traded Monday afternoon down 14 cents at $6.88. They traded at $33.74 when the merger was announced.


The Obama Administration, For Big Banks By Big Banks

Four years after the banking industries reckless lending practices and criminal schemes led to a near collapse of of the economy, taxpayer funded bailouts and secret Federal Reserve loans totaling trillions of dollars; federal prosecutors are still turning a blind eye even as judges around the country are pointing fingers at possible wrongdoing.

The Justice Department claims that hard evidence is hard to come by but according to a new Reuters report that is not the case.

Foreclosure-related case files in just one New York federal bankruptcy court hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings. Altered notes have appeared in courts all around the country.

In the past two years banks have refused to halt forecloses on thousands of active-duty U.S. soldiers homes who are legally eligible to have foreclosures stopped. Refusing to grant foreclosure stays is a misdemeanor under federal law. The U.S. Treasury stated in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.

Last month in Alabama, a federal bankruptcy judge ruled that Wells Fargo & Co. filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.

Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.

In thousands of cases, documents required to transfer ownership of mortgages have been falsified. Mortgage servicers who needed the originals to foreclose simply drew up new ones, falsely signed by their own staff as employees of the original lenders, many of which no longer exist.

Most of the major banks have been able to somehow avoid federal prosecution thus far but Reuters has identified one pending federal criminal investigation into Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks. People close to the investigation said indictments may come as early as the end of this month.

Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.

“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”

Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators charged with defrauding banks with forged mortgage applications or for taking advantage of homeowners by falsely promising arrangements to get them out of default and then keeping their money.

Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks.

She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”

Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.

“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Judge Drain said Bank of America had not been working to modify Tomasulo’s mortgage despite telling the court that they had been since January.

“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”

Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury suspended loan modification incentive payments to the bank this year because it was “seriously deficient” in responding to requests for modifications.

Mounting evidence of foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.

In September of 2010, evidence surfaced that employees of Ally Financial Corp. were guilty of “robo-signing,” which is the act of low-level workers signing and swearing to the facts in thousands of affidavits they hadn’t read or checked. The affidavits were then notarized outside the signers’ presence, a violation of state and federal criminal laws.

A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy. According to the Trustees Program, banks falsified affidavits by claiming homeowners owed fees for services never rendered and by overstating how much owners were behind on payments.

In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.

The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much. Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.

Last year the FBI’s Las Vegas office shut down its mortgage fraud task force, even though Vegas has been one of the hardest hit areas of the crisis. Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.

The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.

Bankruptcy court records reviewed by Reuters show that at least a dozen different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.

In one, Wells Fargo is attempting to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.

In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing and altered on the second. The second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.

The judge threw out the second attempt too. Wells Fargo is trying a third time and declined to comment on the case.

Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, for “fabrication of documents.”

“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”

The office of Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.

In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.

In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.

In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”

Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.

“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.

What is Obama’s stance on all of this? In classic political double speak, President Obama spoke out of both sides of his mouth in a 60 Minutes interview about the issue.

Hey Mister President Reuters has a new report out that makes for an interesting read, you should check it out.

Obama administration protecting big banks from foreclosure and mortgage securities fraud investigations?

New York Attorney General Eric Schneiderman is being pressured by the Obama administration to accept a wide-ranging state settlement with banks over dubious foreclosure practices. Mr. Schneiderman and top prosecutors in some other states are objecting to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

The secretary of Housing and Urban Development, Shaun Donovan, and high-level Justice Department officials have been trying to persuade the attorney general to support the settlement. Mr. Donovan and others in the administration have even been contacting Mr. Schneiderman’s allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal.

Terms of the possible settlement focus on improper foreclosure practices such as robo-signing and submitting forged court documents to speed up the process of removing people form their homes. Negotiations on this deal have been led by Thomas J. Perrelli, associate attorney general of the United States, and Tom Miller, the attorney general of Iowa.

Institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo were asked to pay about $20 billion that would go toward loan modifications and possibly counseling for homeowners. In exchange, the attorneys general participating in the deal would have agreed to sign broad releases preventing them from bringing further litigation on matters relating to the improper bank practices.

The banks balked at the $20 billion figure and the talks seemed to stall over the summer, as Mr. Schneiderman and a few other attorneys general, including Beau Biden of Delaware and Catherine Cortez Masto of Nevada, questioned aspects of the deal.

Mr. Schneiderman began objecting a few months ago to the proposed releases barring future litigation, declining to participate as long as they were included.

“The attorney general remains concerned by any attempt at a global settlement that would shut down ongoing investigations of wrongdoing related to the mortgage crisis,” said Danny Kanner, the spokesman for Mr. Schneiderman. His office has opened several inquiries into mortgage practices during the credit boom.

Mr. Schneiderman has also sued to block a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion. Lawyers representing 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock and Pimco, contended that the deal was favorable. Schneiderman’s lawsuit contends that the deal could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” experienced by investors and that it had been negotiated without the knowledge of all of the holders of the securities.

On August 7th, Mr. Schneiderman crossed paths with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit said in an interview on Thursday that she told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Something indefensible? Like foreclosure and mortgage securities fraud maybe?


Presidential candidate Rick Perry has a friend in Bank of America…

A top Bank of America official brushed past Gov. Rick Perry (R) during a New Hampshire business breakfast on Wednesday, shook his hand and said to the presidential candidate “Bank of America, we will help you out,” before walking away in what looked like a scene out of a spy thriller. The unsavory gentleman in the video is James Mahoney, Bank of America’s director of public policy. Check out the video below in all it’s creepy behind the scenes politricking glory. Make sure your volume is turned way up as the video’s audio is pretty low.

Federal audits accuse five largest mortgage companies of defrauding taxpayers…

Five separate investigations of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial conducted by the Department of Housing and Urban Development’s inspector general have revealed fraud committed against taxpayers in regards to foreclosures on homes purchased with government-backed loans.

The institutions in question are being accused of violating the False Claims Act and cheating taxpayers by presenting the Federal Housing Administration with claims for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using faulty documents. Two of the firms, one of which is Bank of America, refused to cooperate with the investigations. The audit on Bank of America finds that the company, the nation’s largest handler of home loans, did not correct flawed foreclosure practices that it acknowledged existed and claimed to have fixed, according to sources.

The investigation into Wells Fargo found that senior managers at the firm broke civil laws. Two South Carolina public notaries who improperly signed off on foreclosure filings for Wells were also interviewed by HUD’s inspector general .

The Justice Department is looking into faulty court filings in bankruptcy proceedings while several states are examing foreclosure filings to gauge the extent of so-called “robo-signing” and other defective practices, including illegal home repossessions.

Attorneys generals from all 50 states and state bank supervisors have joined HUD, the Treasury Department, the Justice Department and the Federal Trade Commission in talks with the five largest mortgage servicers to settle these allegations. Federal Deposit Insurance Corporation Chairman Sheila Bair told a Senate panel that these processes “have potentially infected millions of foreclosures,”.

A report from the Government Accountability Office found that at least two of the fourteen largest mortgage firms illegally foreclosed on the homes of almost 50 active-duty military service members last year, which is a violation of federal law.

You can watch Huffington Post reporter Shahien Nasiripour go more in depth on this story in an interview with Democracy Now via Youtube user “mediagrrl9”

U.S. Uncut “Pay up” flashmob at Bank of America

Those U.S. Uncut hooligans are at it again. Despite the off beat singing and slightly awkward dancing this is an epic form of protest against one of the countries biggest tax dodgers. Check out how US Uncut, in collaboration with The Ruckus Society and Brass Liberation Orchestra kicked off the tax day weekend in San Francisco.