Bank of America CEO, ex-CEO must face mortgage disclosures lawsuit

Wed Apr 17, 2013 6:53pm EDT

Bank of America Chief Executive Brian Moynihan poses during an interview in Hong Kong March 8, 2013. REUTERS/Bobby Yip

Bank of America Chief Executive Brian Moynihan poses during an interview in Hong Kong March 8, 2013.

Credit: Reuters/Bobby Yip

(Reuters) - A federal judge has revived a securities fraud lawsuit accusing Bank of America Corp (BAC.N) Chief Executive Brian Moynihan, his predecessor Kenneth Lewis, and others of misleading shareholders about the risk the bank might have to buy back large amounts of soured mortgages.

U.S. District Judge William Pauley in Manhattan in July had dismissed various claims against the executives by shareholders led by the Pennsylvania Public School Employees' Retirement System, while letting their case against the second-largest U.S. bank proceed.

But Pauley said the new allegations in an amended lawsuit "plausibly establish fraudulent conduct and a culpable state of mind as to all executive defendants" for allegedly concealing the buyback potential when certifying the bank's financials.

He also said Moynihan could be liable for statements that were inconsistent with a May 13, 2010, letter sent on his behalf to the Financial Crisis Inquiry Commission regarding the bank's securitization practices.

The other individual defendants include former chief financial officers Joe Price and Charles Noski, and Chief Accounting Officer Neil Cotty.

Jay Kasner, a lawyer for the individual defendants, was not immediately available for comment. Bank of America spokesman Lawrence Grayson declined to comment. Mark Rosen, a lawyer for the plaintiffs, was not immediately available for comment.

The shareholders alleged they had been misled into buying shares of Charlotte, North Carolina-based Bank of America in 2009 and 2010.

They claimed that Bank of America knew at the time it faced capital shortfalls and large mortgage buybacks, and that recordkeeping in Merscorp Inc's private Mortgage Electronic Registration Systems registry was so poor that it would not be able to legally foreclose on thousands of delinquent mortgages.

Mortgage finance giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and several large banks had established MERS in 1995 to circumvent the often unwieldy process of transferring ownership of mortgages and recording changes with county clerks.

Earlier on Wednesday, Bank of America Corp announced a $500 million settlement with investors who claimed they were misled by its Countrywide unit into buying risky mortgage debt. That settlement was the largest to resolve federal class-action litigation over mortgage-backed securities.

The case is Pennsylvania Public School Employees' Retirement System et al v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 11-00733.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)