AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America

American International Group (AIG) is seeking to recover over $10 billion in mortgage-backed securities-related losses from Bank of America (BAC). The losses were allegedly sustained on $28 billion in investments.

In what may be the largest MBS-related action filed by one investor, the complaint accuses Bank of America and its units Countrywide Financial and Merrill Lynch of misrepresenting the quality of the mortgages that were in the securities that investors bought. AIG also claims that Bank of America used false data to persuade the credit rating agencies to give the MBS high ratings.

Bank of America, which contends that the disclosures that were made were robust enough for sophisticated investors and that AIG is a “seasoned investor,” is denying AIG’s allegations against it. According to Bank of America spokesperson Lawrence Di Rita, the reason AIG suffered the financial losses at issue is because it was reckless in pursing profits and high yields in the “mortgage and structured finance markets.”

Bank of America’s 2008 acquisition of Countrywide for $4 billion has cost the financial firm much more in mortgage-related fines, losses, loan buybacks, and litigation expenses. Courthouse News Service database reports that Countrywide and Bank of America have been named as defendants in 1300 lawsuits in 2011 alone. Recently, Bank of America agreed to settle investor MBS claims for $8.5 billion. Parties to the settlement included the Bank of NY Mellon, BlackRock, the Federal reserve Bank of New York, and PIMCO. However, the New York Attorney General is now calling that settlement inadequate.

As for AIG, which is still largely owned by taxpayers following its 2008 government bailout, the New York Times says that the insurer is preparing similar securities fraud complaints against JPMorgan Chase, Goldman Sachs, and Deutsche Bank to try to recover some of the billions that it lost during the economic crisis.

Government Not Proving Helpful In Pursuing Investment Banks
Contrary to investors, who are seeking to hold big banks accountable in civil court, the Justice Department closed many of its investigations into Wall Street’s big banks without filing any criminal charges. Although it has brought cases against three employees at big financial banks, no executives have been charged. However, a spokesperson for the Justice Department says that the government has pursued the cases were appropriate and that it is much more difficult to prove that a crime has been committed beyond a reasonable doubt than to find a party liable in civil court.

The New York Times reports that a person familiar with the case says that the Justice Department has concluded its investigation into Countrywide’s actions heading into the financial crises and that there will be no charges filed. The government also recently closed its probe into Washington Mutual, with the finding that there was no evidence of criminal wrongdoing. The Washington bank almost failed because of high-risk mortgages.

Related Web Resources:

A.I.G. Sues Bank of America Over Mortgage Bonds, The New York Times, August 8, 2011

AIG sues Bank of America for $10 billion over mortgages, USA Today/AP, August 8, 2011

More Blog Posts:
Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, July 22, 2011, June 25, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Our securities fraud attorneys represent investors that sustained MBS-related losses because of broker misconduct.