Robbins Geller Rudman & Dowd LLP has announced that a class action lawsuit has been filed on behalf of an institutional investor in the U.S. District Court for the Southern District of New York against Bank of America Corporation (BofA) alleging that defendants issued materially false and misleading statements regarding the company’s business. Defendants concealed defects in the recording of mortgages and improprieties with respect to the preparation of foreclosure paperwork that harmed BofA’s investors when BofA had to temporarily discontinue foreclosures and admit to the problems it was experiencing. For much of the class period, defendants also concealed that BofA had previously engaged in a practice known as “dollar rolling,” wherein it omitted billions of dollars in debt from its balance sheet reported to the public. As a result of defendants’ false statements, BofA’s stock traded at artificially inflated prices during the class period, reaching a high of $19.48 per share on April 15, 2010.
Beginning in May 2010, BofA began disclosing aspects of its “repo-to-maturity” transactions (dollar rolling), claiming the transactions did not have a material impact on BofA’s balance sheet. Later, in October 2010, BofA announced a nationwide foreclosure halt pending a review of its foreclosure processes and whether there were irregularities with respect to its previously completed foreclosure activities. On Oct. 19, 2010, BofA announced its third quarter 2010 financial results, reporting a net loss of $7.3 billion and a diluted earnings per share loss of $0.77. BofA further reported receiving $18 billion in claims about faulty home loans that it may have to repurchase. On this news, BofA stock dropped $0.54 per share, to close at $11.80 per share on Oct. 19, 2010—a one-day decline of five percent and a nearly 42 percent decline from the stock’s class period high.
According to the complaint filed, the true facts, which were known by the defendants but concealed from the investing public during the class period, were as follows:
►BofA did not have adequate personnel to process the huge numbers of foreclosed loans in its portfolio;
►BofA had not properly recorded many of its mortgages when originated or acquired, which would severely complicate the foreclosure process if it became necessary;
►Defendants failed to maintain proper internal controls related to processing of foreclosures;
►BofA’s failure to properly process both mortgages and foreclosures would impair the ability of BofA to dispose of bad loans; and
►BofA had engaged in a practice known internally as “dollar rolling” to remove billions of dollars of debt from its balance sheet over the prior years.
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