(Adds Triaxx and Bank of New York Mellon declined to comment,
By Karen Freifeld
NEW YORK, July 16 Bank of America Corp
agreed to pay the insurer American International Group Inc
$650 million to settle long-running legal disputes over
defective mortgage-backed securities that the bank sold in the
run-up to the financial crisis.
The settlement which the parties announced on Wednesday ends
securities fraud litigation brought by AIG against the bank.
It also removes the biggest obstacle to the bank's $8.5
billion settlement with investors in mortgage securities issued
by Countrywide Financial Corp, the mortgage lender Bank of
America acquired in July 2008.
AIG agreed to dismiss litigation in New York and California
that accused the bank of fraudulently causing billions of
dollars in losses by selling it shoddy mortgage securities. It
originally sought $10 billion of damages in the New York case.
For the past three years, AIG has also led opponents of Bank
of America's $8.5 billion settlement in June 2011 with
institutional investors to resolve claims that Countrywide
misrepresented the quality of home loans underlying $174 billion
of mortgage-backed securities it issued before the housing
Twenty-two institutional investors, including BlackRock Inc
, Allianz SE's Pimco and Metlife Inc
had agreed to the settlement, with the Bank of New York Mellon
Corp serving as trustee.
AIG claimed the settlement undervalued its claims, and had
been appealing January's approval by Justice Barbara Kapnick in
New York state court of the bulk of the settlement.
In agreeing to drop its appeal, AIG said it will accept a
pro rata share of whatever investors recover. A group of funds
known as Triaxx and a pension fund for Chicago police remain as
A spokesman for Bank of New York Mellon declined to
comment. A lawyer for Triaxx declined to comment, while a lawyer
for the Chicago pension fund did not immediately respond to a
request for comment.
Bank of America said it had set aside reserves by June 30
for the $650 million settlement, which also resolves three
actions it brought to collect mortgage insurance proceeds from
AIG's United Guaranty unit on loans it had originated and
The cases are American International Group Inc et al v.
Maiden Lane II LLC, U.S. District Court, Southern District of
New York, No. 13-00951; American International Group Inc et al
v. Bank of America Corp et al, U.S. District Court, Central
District of California, No. 11-10549, and In re: The Bank of New
York Mellon, New York State Supreme Court, New York County, No.
(Reporting by Karen Freifeld; Additional reporting by Jonathan
Stempel; Editing by Lisa Von Ahn and Diane Craft)