United States District Court, S.D. New York
PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiff,
BANK OF AMERICA CORPORATION, et al., Defendants
For Plaintiff: Mark Robert Rosen, Barrack, Rodos & Bacine, Philadelphia, PA.
For Bank of America and the Executive, Defendants: Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY.
WILLIAM H. PAULEY III, U.S.D.J.
MEMORANDUM & ORDER
Lead Plaintiff Pennsylvania Public School Employees' Retirement System
(" Plaintiff" ) brings this putative class action against Bank of America Corporation (" BoA" ) and current and past officers and directors of BoA: Kenneth D. Lewis, Joseph Lee Price, II, Brian T. Moynihan, Neil Cotty, and Charles H. Noski (the " Executive Defendants" ). The Executive Defendants move to dismiss the Amended Consolidated Class Action Complaint. For the following reasons, the Executive Defendants' motion is denied.
This Court's July 11, 2012 Memorandum & Order describes the allegations undergirding this action. See Pa. Pub. Sch. Emps' Ret. Sys. v. Bank of Am. Corp., 874 F.Supp.2d 341, 346, (S.D.N.Y. 2012). In that Memorandum & Order, this Court dismissed all defendants except BoA from this action, granted Plaintiff leave to re-plead its claims against the Executive Defendants, and denied the motion to dismiss with respect to the Section 10(b) and Rule 10b-5 claim against BoA. Plaintiff filed its Amended Complaint on August 13, 2012.
Originally, Plaintiff alleged two claims against the Executive Defendants: (1) violations of Section 10(b) of the Securities Exchange Act of 1934 (" Exchange Act" ) and Rule 10b-5, and (2) violations of Section 20(a) of the Exchange Act. This Court dismissed Plaintiff's first claim because it failed to plead the required strong inference of scienter. Pa. Pub. Sch. Emps' Ret. Sys., 874 F.Supp.2d at 359. This Court also dismissed Plaintiff's second claim for failing to plead the required culpable state of mind. Pa. Pub. Sch. Emps' Ret. Sys., 874 F.Supp.2d at 368.
In its initial Complaint, Plaintiff alleged that the BoA Defendants: (1) tolerated robo-signing; (2) failed to disclose BoA's vulnerability to repurchase claims; (3) deliberately circumvented internal controls in establishing allowances for repurchase claims; (4) kept reserves for repurchase claims low to forestall additional repurchase claims; (5) fought repurchase claims to discourage investors from asserting additional ones; (6) resisted investor attempts to examine loan files; (7) concealed BoA's use of Mortgage Electronic Registration Systems, Inc. (" MERS" ); and (8) failed to notify mortgage-backed securities (" MBS" ) purchasers of breaches. Plaintiff also alleged that the magnitude of the fraud created an additional basis for establishing scienter. This Court found those allegations insufficient and held that " Plaintiff does not allege that the Executive Defendants knew of specific contradictory information at the same time they made misleading statements." Pa. Pub. Sch. Emps' Ret. Sys., 874 F.Supp.2d at 359.
In its Amended Complaint, Plaintiff alleges that the Executive Defendants made misleading statements despite knowing that (1) BoA was vulnerable to repurchase claims; (2) BoA had a material weakness in its internal controls; and (3) BoA was failing to comply with generally accepted accounting principles (" GAAP" ) and SEC regulations.
First, Plaintiff alleges that a letter dated May 13, 2010 from BoA's outside counsel to the Financial Crisis Inquiry Commission (" FCIC" ) establishes Moynihan's scienter. The letter " summarized the negative effects flowing from BoA's overemphasis on generating loans for securitization without due regard to prudent lending." Pa. Pub. Sch. Emps' Ret. Sys., 874 F.Supp.2d at 364. It was sent in response to a request from FCIC Chairman Green, who asked Moynihan to expand on prior testimony that he had given to the FCIC. (Amended Consolidated Class Action Complaint, dated August ...