* Case involves Countrywide mortgage securities
* Trustee BNY Mellon to present case for deal approval
* Investors including BlackRock, Pimco support accord
* AIG, Federal Home Loan banks call settlement inadequate
By Karen Freifeld
NEW YORK, June 3 A long-running fight comes to a
head on Monday when court proceedings begin over an $8.5 billion
settlement between Bank of America Corp and investors in
mortgage securities that turned sour in the financial crisis.
Bank of America agreed to the proposed settlement in June
2011 to resolve claims by investors who held bonds issued by
mortgage lender Countrywide Financial Corp, which Bank of
America bought in 2008.
Twenty-two institutional investors, including BlackRock Inc
, MetLife Inc and Allianz SE's Pacific
Investment Management Co entered into the deal. But American
International Group Inc and others objected, saying the
settlement offered them only a fraction of the money they lost.
Justice Barbara Kapnick of New York State Supreme Court, who
will decide the case without a jury, has set aside the first
two weeks of June to hear the case.
If she rejects the settlement, the parties could face years
Kathy Patrick, who will argue for the institutional
investors who negotiated the deal, said objectors comprise only
seven percent of certificate-holders.
"There is massive support for this settlement," Patrick said
in arguments during a last-minute appeal last week.
The proposed deal "offers pennies on the dollar," Colorado
attorney Daniel Reilly, who represents AIG, said during last
Over 20 AIG entities and the home loan banks of Boston,
Indianapolis and Chicago are among 65 opponents of the
settlement, he said.
The opponents say losses to the trusts might exceed $100
billion, according to court papers. They claim BNY Mellon placed
its interests and those of Bank of America above certificate-
holders. They point out BNY Mellon gets trust business from the
The case was filed by Bank of New York Mellon, the trustee
for some 530 trusts that held the securities, asking the court
to approve the settlement and declare it binding on all
Matthew Ingber, who represents BNY Mellon, is expected to
argue the trustee has the right to settle claims and exercised
good faith judgment in deciding the settlement was reasonable.
"We believe this $8.5 billion settlement is in the best
interests of all the certificate-holders," Ingber said during
last week's appeal.
In the two years since it was filed, the case has been a
frenzy of activity.
An investor group that opposed the settlement, led by
Boston-based Baupost Group, moved the case to federal court in
the hope of getting a higher payout. The attorneys general of
New York and Delaware voiced their opposition to the deal and
New York accused trustee BNY Mellon of fraud.
Then the pendulum swung in the other direction. A U.S.
appeals court sent the case back to state court, Baupost,
operating under the name Walnut Place, withdrew its objections
and New York dropped the fraud claims. Last month, the two
attorneys general also withdrew their objections to the deal.
A ruling could take months after the trial is completed.
The case is In re: Bank of New York Mellon, New York State
Supreme Court, New York County No. 651786/2011.