A judge has thrown out a securities lawsuit by shareholders accusing Bank of America Corp. (BAC) of concealing that insurer AIG (AIG) intended to file a $10 billion fraud case against it. U.S. District Judge John Koeltl in Manhattan said that BofA and four of its officers were not obligated to reveal in advance that the lawsuit was pending or that it was a large one.
AIG filed its securities fraud lawsuit against Bank of America in 2011. The insurer claimed that the bank misrepresented the quality of over $28 billion of mortgage-backed securities it purchased not just from the bank but also from its Merrill Lynch (MER) and Countrywide units. On the day that the complaint was filed, shares of Bank of America dropped 20.3% and Standard & Poor’s revoked the tripe-A credit rating it had issued.
The shareholder plaintiffs claim that the bank’s officers, including Chief Executive Brian Moynihan, knew about the MBS fraud case six months before the lawsuit was submitted and they should have given them advance warning.
Judge John Koeltl, however, said that the specifics about the securities case did not materially differ from what Bank of America already disclosed in its mortgage exposures. He also determined that the bank did not issue inaccurate or incomplete statements.
AIG’s mortgage-backed securities lawsuit is still pending.
Meantime, the media is reporting that the AIG may be getting ready to file another MBS fraud case, this one against Morgan Stanley (MS). The case would be over the $3.7 billion of mortgage securities that the bank sponsored and underwrote between 2005 to 2007 that AIG then bought. The insurer has submitted a regulatory filing about its plans to possibly file. AIG ended a “tolling agreement” with the firm that would have allowed them to resolve their disagreement outside a courtroom.
The Resolution Law Group’s mortgage-backed securities lawyers represent institutional and individual investors that have sustained financial losses because of securities fraud. Contact our MBS fraud law firm today.
Judge Dismisses Suit Against Bank of America For Not Disclosing AIG Claims, Insurance Journal, November 4, 2013