BofA legal troubles deepen as big investors sue
NEW YORK (Reuters) - Bank of America Corp (BAC.N) was sued by 15 former Countrywide Financial Corp institutional investors who said they lost money after being misled about the mortgage lender's financial condition and lending practices.
BlackRock Inc (BLK.N), the California Public Employees' Retirement System (CalPERS), T Rowe Price Group Inc (TROW.O), TIAA-CREF and the other plaintiffs, including some in Europe, sued in Los Angeles federal court, after deciding not to join a $624 million settlement that won court approval in February.
These plaintiffs believed they could recover more by suing on their own over the "massive and pervasive" fraud at Countrywide, which Bank of America bought on July 1, 2008.
Thursday's lawsuit deepens the legal problems for Bank of America over Countrywide, for which it paid $2.5 billion. Analysts have estimated that its ultimate cost, including legal bills and loan losses, could easily exceed 10 times that sum.
Last month, the Charlotte, North Carolina-based bank entered an $8.5 billion agreement to end most litigation by investors who bought securities backed by risky Countrywide home loans. Some of those investors have complained this agreement too may be unfair.
According to the 425-page complaint by the 15 plaintiffs, Countrywide and officials like former Chief Executive Angelo Mozilo abandoned prudent lending, reserved too little for bad loans and inflated earnings, in a drive to triple market share to 30 percent and enrich themselves.
Top executives "were fully aware of but failed to disclose, and in fact expressly authorized and engaged in, Countrywide's risky lending," the complaint said.
Countrywide shares ultimately sank more than 90 percent from their peak as losses from its subprime, pay-option and other risky mortgages began to pile up.
Bill Halldin, a Bank of America spokesman, said: "It is unfortunate that select investors chose to opt out of a fair and equitable agreement to settle these issues. We intend to vigorously defend these claims."
"UNFORTUNATE," BANK SAYS
The plaintiffs seek unspecified damages and class-action status for the March 12, 2004 to March 7, 2008 period.
They are also seeking a jury trial, and to "maximize the recovery of their damages," their lawyer Blair Nicholas, a partner at Bernstein Litowitz Berger & Grossmann, said.
Other defendants include former Chief Operating Officer David Sambol and former Chief Financial Officer Eric Sieracki, and former auditor KPMG LLP.
Lawyers for the former executives did not return requests for comment. KPMG spokesman Dan Ginsburg declined to comment.
The February 25 settlement approved by U.S. District Judge Mariana Pfaelzer in Los Angeles called for Bank of America to pay $601.5 million to former Countrywide investors, and set aside $22.5 million for claims of investors that opted out.
That money would go to investors in the earlier settlement if it is not used within two years.
Mozilo last October reached a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit accusing him of misleading investors and generating improper gains from stock sales. He did not admit wrongdoing.
Bank of America shares have fallen close to 60 percent since it bought Countrywide, roughly three times as much as the KBW Bank Index .BKX. In afternoon trading, the shares were unchanged at $9.79.
(Reporting by Jonathan Stempel; Editing by Phil Berlowitz)
- Nearly 300 missing after South Korean ferry capsizes: coastguard |
- Separatists fly Russian flag over Ukrainian armored vehicles
- Ocean floor search for missing Malaysia plane cut short again
- Ukraine launches 'gradual' operation, action limited |
- China economic growth slows to 18-month low in first-quarter |