In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.
Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.
Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.
According to both plaintiffs, Bank of America failed to let investors know in preliminary documents that the majority of its mortgages were obtained via wholesale markets that bank executives did not think very highly off. The bank is also accused of not submitting the flawed documents to the Commission.
The DOJ invoked a law that lets the government punish for acts that are too old to be covered under other laws and also push for bigger awards. The government claims that as the lender Bank of America made it seem as if its bonds were backed by prime loans that had staff approval when really the riskiest loans came from external brokers.
Meantime, Bank of America continues to battle other claims related to mortgage securities. This week, bank officials asked for a meeting between its top executives and U.S. Attorney General Erica Holder to talk about a potential multibillion-dollar settlement over mortgage-backed securities. At issue is the way the bank handled MBSs leading up to the financial crisis. Bank of America is expected to pay at least $12 billion to settle civil investigations brought by the DOJ and a number of states.
However, there is one securities case that just took a positive turn in Bank of America’s favor. On Thursday, U.S. District Judge Barbara Rothstein vacated her order from last year that dismissed the bank’s case against the Federal Deposit Insurance Corp.
Bank of America is suing FDIC over $1.7 billion in client losses related to a mortgage-fraud scam at former lender Taylor Bean & Whitaker Mortgage Corp. The fraud took place from 2002 through 2009 when Taylor Bean Chairman Lee Farkas sold over $1.5 billion in bogus mortgage loans to Colonial Bank while diverting over $1.5 billion from Ocala funding.
Bank of America claims that when assessing Colonial Bank’s receivership funds the FDIC did not follow procedures. Judge Rothstein has now withdrawn her earlier finding that there are sufficient assets in Colonial Bank’s receivership to pay general unsecured creditors.
Our RMBS fraud law firm represents institutional investors and high net worth individuals. Contact The SSEK Partners Group today.
Bank of America Requests Meeting With Attorney General, The Wall Street Journal, June 20, 2014
BofA FDIC Suit for $1.7 Billion Investor Losses Revived, Bloomberg, June 20, 2014
BofA must face mortgage-securities fraud lawsuits, Crains New York, June 20, 2014
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