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As night follows day, lawsuits follow financial calamity. Most big players in the subprime mess—the lenders, their Wall Street backers, accounting firms, rating agencies—face civil suits alleging they deceived investors. Below, a look at where things stand in some of the leading clashes. Most subprime cases will be settled. But depositions could yield facts about who knew what, and when. Given the size of the debacle, federal officials will likely review the cases for evidence of criminal conduct. Defendants generally argue that when markets collapse it's difficult to assess blame, and that their statements at the time were optimistic opinions. But if plaintiffs, typically led by pension funds, win class-action status, the potential liability may force compromises. Already, Merrill Lynch (MER) agreed to pay $475 million to Ohio's State Teachers Retirement System. Since some of the bailout money going to banks may be used for settlements, you could think of the lawsuit boom as part of the stimulus program—one that may stimulate lawyers more than anyone else.
BANK OF AMERICA
Named Defendants: BofA (BAC); CEO Kenneth Lewis; former Merrill Lynch CEO John Thain; current and former directors of BofA and Merrill
Lead Plantiff: Finger Interests Number One, a BofA shareholder; seeking class-action status
Claim: The companies misled shareholders about the scope of Merrill's losses as BofA completed its acquisition of Merrill late last year; BofA's share price subsequently fell nearly 50%
Response and Status: A BofA spokeswoman declined to comment on the suit, filed on Jan. 22. But defendants have characterized the Merrill deal as proper; BofA executives have said they didn't know the extent of Merrill's troubles at the time
Named Defendants: Bear Stearns, former CEO James Cayne; other former executives
Lead Plantiff: State of Michigan Retirement System; seeking class status
Claim: Bear Stearns fraudulently misled investors about its financial condition, including that of two Bear hedge funds, before its collapse
Response and Status: Former Bear executives deny wrongdoing, blaming market conditions for its implosion and forced sale to JPMorgan Chase (JPM). Separately, the U.S. Attorney in Brooklyn has charged two former executives responsible for the defunct hedge funds with criminal fraud for allegedly misleading investors; defendants have denied those charges
Named Defendants: Countrywide Financial; former CEO Angelo Mozilo; other former officers and directors; accountancy KPMG; securities underwriters, including Goldman Sachs, units of Citigroup (C), and JPMorgan Chase
Lead Plantiff: New York City Board of Education Retirement System; seeking class status
Claim: Countrywide misled investors about its financial health, as CEO Mozilo and other officers sold $687 million worth of Countrywide shares. KPMG and underwriters failed to perform due diligence
Response and Status: All defendants deny wrongdoing, citing deteriorating economic forces. A federal judge in Los Angeles denied defendants' motion to dismiss
CREDIT RATING AGENCIES
Named Defendants: HarborView; Royal Bank of Scotland Group; Greenwich Capital; Fitch Ratings, Moody's Investors Service, S&P
Lead Plantiff: New Jersey Carpenters Vacation Fund; seeking class status
Claim: The financial firms failed to disclose the low quality of loans contained in $6.3 billion of securities sold to investors. Rating agencies, including Standard & Poor's (a unit of BusinessWeek publisher The McGraw-Hill Companies (MHP)) assigned "inflated values" to the bonds
Response and Status: In a filing on behalf of all defendants, McGraw-Hill denies plaintiffs are entitled to any recovery and has said claims against it are "without merit" and that it will "seek dismissal"
Named Defendants: Merrill; former CEO Stanley O'Neal; other former executives
Lead Plantiff: Ohio's State Teachers Retirement System; class status granted
Claim: Merrill fraudulently misled investors about its condition, including its holdings of securities tied to subprime mortgages
Response and Status: Merrill and former executives deny any wrongdoing, blaming market conditions for the bank's losses and sale to BofA in September 2008. Without admitting any impropriety, on Jan. 16, Merrill agreed to settle the case for $475 million, the largest subprime settlement so far.