The Litigation Scorecard

Now that the World Series is over, many fans are suffering withdrawal symptoms over the need to keep a current scorecard of exciting day to day sports action. Weekend football just is not sufficient and Hockey belongs in Canada. Yes, there is basketball, but something is needed to replace baseball.

I have just the ticket: The Litigation Scorecard. Action has been fast and furious since October 18.

For example: Merrill Lynch (MER) and Countrywide (CFC) were both hit hard by their respective opponents in boxing matches earlier today. Earlier this month New Century was accused of illegal procedure in a football game with a young couple. Bank of America (BAC) stands accused of reneging in a high stakes Euchre Game. Details will follow but let's first consider the October Litigation Scorecard.

Litigation Scorecard

• October 30 - Merrill Lynch (MER) hit with shareholder lawsuit
  
• October 30 - Mozilo and Countrywide (CFC) hit with shareholder lawsuit
  
• October 25 - American Home accuses Lehman Bros. (LEH) of hitting American Home below the belt with improper margin calls in July and demanding money the company says it did not owe.
• October 24 - A couple sues New Century for illegal procedure in loan disclosure documents
  
• October 24 - HSBC sued by Canadian firm Aastra Technologies Ltd. over asset-backed commercial paper investments. Aastra's puck (assets) have been frozen since August.
• October 23 - American Home is accusing Bank of America (BAC) of reneging on swap agreements in a high stakes Euchre Game. American Home seeks $25 million for the reneg.
  
• October 19 - Luminent Mortgage Capital Inc. (LUM) is seeking a penalty kick in an international soccer match with HSBC.
  
• October 18 - Book publisher Unisystems Inc., on behalf of all all retirement plans that invested in State Street-managed bond funds sues State Street (STT) for being offsides in an investment gamble by investing pension plan funds meant for low-risk investments into high-risk mortgage-backed securities
• October 06 - Fremont sued by Massachusetts attorney general for predatory lending encroachment
  
• October 02 - In a battle between middle-heavyweights, State Street (STT) was Sued by Prudential (PRU) Over Subprime Losses

Litigation Details and Links

On October 30 Merrill Lynch was hit with shareholder lawsuit over subprime

An investor lawsuit has been filed against Merrill Lynch & Co Inc (MER.N), contending that the company issued false and misleading statements about its exposure to risky mortgage investments, the plaintiffs' lawyers said on Tuesday.

The complaint accused Merrill of issuing materially false and misleading statements about its financial exposure to collateralized debt obligations (CDOS) containing subprime mortgage securities.

The company's statements "were materially false due to their failure to inform the market of the ticking time bomb in the company's CDO portfolio due to the deteriorating subprime mortgage market," the complaint said.

On October 30, Countrywide shareholders sued CEO Mozilo, board

Countrywide Financial Corp Chief Executive Angelo Mozilo has been sued by a pension fund that accused the largest U.S. mortgage lender of helping executives pocket improper gains by artificially inflating its stock price through share buybacks.

The New England Teamsters & Trucking Industry Pension Fund accused Mozilo, other Countrywide executives and the company's board of directors of gross mismanagement for improperly using $2 billion of cash to repurchase stock.

It said the move allowed executives to sell $842 million of Countrywide shares at artificially high prices between April 2004 and October 2007, at the expense of ordinary shareholders.

In addition to Mozilo, the lawsuit names President and Chief Operating Officer David Sambol; Executive Managing Directors Carlos Garcia, Ranjit Kripalani and Andrew Gissinger III; Chief Legal Officer Sandor Samuels and Chief Financial Officer Eric Sieracki.

It also names board members Oscar Robertson, Michael Dougherty, Robert Donato, Jeffrey Cunningham, Harley Snyder, Martin Melone, Keith Russell, Robert Parry and former directors Stanford Kurland, Ben Enis, Edwin Heller, Henry Cisneros, Kathleen Brown, as well as Countrywide's auditor KPMG.

On October 25 American Home Sued Lehman Bros.

Bankrupt lender American Home Mortgage Investment Corp. has sued Lehman Bros., accusing the investment bank of essentially stealing from the company as it struggled to stay on its feet.

The lawsuit, filed Wednesday in the U.S. Bankruptcy Court in Wilmington, Del., accuses Lehman Bros. of hitting American Home with improper margin calls in July and demanding money the company says it did not owe.

When the Melville, N.Y.-based lender couldn't meet Lehman's second margin call, for $7 million, Lehman foreclosed on $84 million worth of subordinated notes issued in American Home's structured-finance operation.

"In so doing, Lehman Bros. did nothing short of 'stealing' property" of American Home, the company said.

Improper margin calls are clearly hitting below the belt.

Here's an interesting illegal procedure case from October 24: Couple sues subprime lender New Century Mortgage Co

A Lowell couple is suing their subprime mortgage lender in Hammond federal court in an attempt to rescind their $126,000 home-equity loan, alleging the company did not disclose the terms of the deal.

Kerry and Susan Burke argue the New Century Mortgage Co., which went bankrupt earlier this year amidst the subprime industry meltdown, should have disclosed their mortgage payments were due each month.

The case was filed by Chicago class-action lawyer Daniel Edelman, who said the Burkes and other people in the same situations could have their home-equity mortgages rescinded.

"If you can rescind it, you can have all the payments applied to the principal," Edelman said. "So it could solve your predatory lending problem."

The Burkes' case is based on a legal technicality. Although their mortgage paperwork states at least 11 times that the payments are monthly, a separate form called the Federal Truth-In-Lending Disclosure Statement does not explicitly make that statement.

The ability to rescind a mortgage for violating the Truth-in-Lending Act in this way only applies to home-equity loans, not mortgages used to buy new or existing homes.

On October 24, in a corporate hockey match, HSBC sued over asset-backed commercial paper, subprime

HSBC Holdings Plc�s Canadian unit became the first financial adviser in the country to be sued over investments in asset-backed commercial paper that were frozen following the U.S. subprime mortgage industry collapse.

Aastra Technologies Ltd., which makes telecommunications equipment, filed the suit today in Ontario Superior Court, alleging HSBC and adviser Nicolas Del Sorbo gave bad advice in recommending asset-backed commercial paper investments.

The assets have been frozen since August. Asset-backed commercial paper consists of short-term notes issued by special-purpose trusts created to hold longer-term investments.

Del Sorbo �acted negligently in failing to perform the necessary investigations'� of the investments, Aastra said in its complaint. �But for Del Sorbo�s representations, Aastra would not have made the investment.'�

On October 23 American Home Units Sue BofA For $25M

Three affiliates of bankrupt American Home Mortgage Holdings Inc. have accused Bank of America NA of reneging on swap agreements in which they are entitled to more than $25 million.

Broadhollow Funding LLC, Melville Funding LLC and a unit of American Home filed an adversary suit on Monday in a Delaware bankruptcy court which seeks to hold BofA accountable for a shortfall in their sale of American Home...

I have inside knowledge on this one. I know for a fact that the game being played was Euchre. Those who guessed Bridge simply guessed incorrectly. $25 million for a reneg in Euchre is indeed quite high stakes.

On October 19th HSBC was sued over subprime bond valuation

U.K. banking group HSBC is being sued by U.S. real-estate fund Luminent Mortgage Capital Inc. over allegations the bank's U.S. mortgage-trading operations took advantage of the recent credit crisis to profit at the fund's expense, according to a report in the Wall Street Journal. Luminent is claiming that HSBC applied an improperly-low valuation to several subprime-mortgage bonds that were used as collateral for loans, the newspaper reported. The complaint says HSBC bought the bonds at a deep discount to their fair value, the Journal said.

On October 18th State St. Sued Over Subprime Investment "Gamble"

State Street Bank and Trust Co. and its advisory firm have been hit with a purported class action for allegedly investing pension plan funds meant for low-risk investments into high-risk mortgage-backed securities which tanked after the subprime mortgage meltdown.

On October 6th, Subprime lender Fremont sued under predator law
The Massachusetts attorney general's office has sued Fremont Investment and Loan, once the state's second-largest subprime lender, accusing it of using predatory lending practices to sell loans to some borrowers who eventually lost their homes or had to file bankruptcy.

The attorney general is seeking fines from Fremont for violating the state's 2004 antipredatory lending law, which bars lenders from making loans that customers are unable to pay, as well as compensation for borrowers.

In a statement, Fremont General Corp., the Brea, Calif., parent company of Fremont Investment, said that it continues to work with regulators around the country to modify loans for customers struggling to make their payments. The company said it is "regrettable that the Massachusetts attorney general has abandoned these cooperative efforts to help borrowers keep their homes."

The above is a clear case of encroachment. Fremont is accused of sticking its neck into disallowed territory.

On October 2 State Street Sued by Prudential Over Subprime Losses

Prudential Financial is suing State Street because of $80 million in losses in two State Street funds caused by "undisclosed, highly leveraged" investments including subprime mortgages. Prudential says the losses were in accounts held by 28,000 individuals in 165 retirement plans that it markets.

Obviously the above is a boxing match between two middle-heavyweights.

This is but a drop in the bucket of an upcoming firestorm of litigation. Have your scorecards ready. Be sure to keep track of all the penalties. Also note on your scorecards the sport or game being played.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/