Legacy liability on securitized loans from its Merrill Lynch and Countrywide Financial Corp. acquisitions has kept Bank of America Corp. busy in federal and state court defending its capital. Among the plaintiffs are life insurance companies and insurers of residential mortgage-backed securities, while a range of BofA subsidiaries are among the defendants.
On March 30, Principal Life Insurance Co. sued BofA and several subsidiaries in the Supreme Court of the State of New York. Principal hopes to collect $143,230,589 for losses it suffered on investments in several 2006 Countrywide Home Loans Inc. issuances and one Bank of America, N.A.-sponsored deal underwritten by Banc of America Securities LLC.
New York Supreme Court Justice Barbara R. Kapnick on Wednesday denied an effort by objectors including American International Group Inc. to convert the proceeding on the Charlotte, N.C.-based bank’s $8.5 billion settlement on Countrywide Financial Corp. MBS. Attorneys general for New York and Delaware have asked for approval to participate in the case on behalf of absent investors in their respective states.
A U.S. District Court judge in Manhattan ruled on April 3 that the trustee for the MBS at issue in the proposed $8.5 billion settlement, Bank of New York Mellon Corp., can be sued by investors, Reuters reported. A pension fund lawyer was quoted as saying that the decision is the first to let investors in mortgage-backed securities pursue claims against a trustee under the 1939 federal Trust Indenture Act.
The Mellon decision was followed on April 11 with the Policemen’s Annuity and Benefit Fund Of The City Of Chicago’s filing of a complaint in U.S. District Court for the Southern District of New York against BofA and U.S. Bank, N.A., as trustees for 41 Washington Mutual Bank MBS. The defendants allegedly didn’t fulfill their responsibility to ensure the necessary loan documentation was in place and that bad loans were removed from the transaction in violation of the Trust Indenture Act of 1939. MBS holders were allegedly harmed as a result.
On March 28, Judge Kapnick granted BofA’s request to dismiss a lawsuit filed on Feb. 23, 2011, by Walnut Place LLC. The plaintiffs alleged that pooling and servicing agreements were breached by BofA when it didn’t repurchase 536 loans that included alleged misrepresentation by Countrywide within 90 days of when the repurchase demands were made.
BofA, Merrill Lynch and First Franklin Financial Corp. were all named as defendants in an April 16 lawsuit filed by Ambac Assurance Corp. in New York Supreme Court. The bank and its subsidiaries are accused of misrepresenting Merrill Lynch Lending-sponsored 2007 issuances of loans originated by First Franklin and insured by the defunct bond insurer. Ambac claims it was deceived about pool characteristics, adherence to underwriting guidelines and due diligence. At one time the loans were serviced by Home Loan Services Inc., a Merrill Lynch & Co. Inc. subsidiary that has since been merged into Bank of America, N.A.
The Appellate Division of the Supreme Court of New York rejected an appeal by BofA to sever successor liability claims from the primary claims in five separate lawsuits filed against Countrywide by bond insurers and to consolidate the cases for discovery. The decision noted that the successor liability actions are at completely different stages of discovery and that consolidation would result in undue delay.
BofA-subsidiary Merrill Lynch is joined by Wachovia Capital and Barclays Capital as investment banking defendants named in a lawsuit announced in March by Space Coast Credit Union. Also named as defendants are Lehman Brothers’ Richard Fuld, Standard & Poor’s and Moody’s. The credit union claims it lost $100 million because the defendants “conspired to inflate toxic bonds into ‘investment grade’ securities using fraudulent credit ratings, and that the investment banks knowingly dumped those inflated securities onto unsuspecting investors.” One of those investors was Eastern Financial Florida Credit Union, which was merged into Space Coast after it collapsed.
“Space Coast is simply seeking to hold Wall Street accountable for the toxic securities they sold, and there is strong evidence supporting its claims,” Robbins Geller Rudman & Dowd LLP Partner Sam Rudman said in the announcement. “Wall Street cannot create toxic securities, package them for sale as ‘investment grade,’ and then expect buy-side investors to sit back and do nothing when their portfolios crash.”
