(Adds details of speech, background, no comment from Bank of
By Aruna Viswanatha
WASHINGTON, July 16 A U.S. Department of Justice
official on Wednesday issued a thinly veiled threat to Bank of
America Corp, saying that banks under investigation for shoddy
mortgage securities they sold before the financial crisis must
admit to misconduct and pay substantial penalties or face
lawsuits from the agency.
The warning from No. 3 Justice official Tony West comes
after a $7 billion settlement with Citigroup Inc earlier
this week and as talks with Bank of America Corp have
stalled over similar claims.
"Let me be clear: We do not investigate these matters
intending to settle them," West said, without naming specific
"I would not be surprised if we were to see additional RMBS
lawsuits in the future," he said during a speech to the
Exchequer Club, a financial policy group in Washington.
The Justice Department-led residential mortgage-backed
securities (RMBS) working group is conducting multiple
investigations and has held talks with Bank of America to
resolve a range of cases including one into securities sold by
its Merrill Lynch unit.
A Bank of America spokesman declined to comment.
Talks have stalled in recent weeks, as the Justice
Department has sought roughly $17 billion in cash penalties and
help to struggling homeowners. The parties have stood as much as
$5 billion apart, sources have said.
While the Justice Department has levied record penalties
against financial institutions over mortgage misconduct,
sanctions violations and other offenses, some lawmakers and
other critics have questioned whether such penalties are enough
and urged the government to take more cases to trial.
Republican Senator John McCain on Wednesday told the Justice
Department in a letter that its settlement with Citigroup
appeared to be "inadequate."
He said the deal did not appear to wholly compensate
investors harmed by the shoddy securities and that it would not
sufficiently deter banks from similar behavior in the future. He
asked for the agency to clarify how it arrived at the deal's
The U.S. Attorney's office in Charlotte sued Bank of America
last year, accusing it of misleading investors on $850 million
worth of mortgage securities, but that office is currently
amending its lawsuit after a judge recommended the dismissal of
its first complaint.
Bank of America has already reached nearly $50 billion in
settlements with housing regulators, government-sponsored
mortgage companies, bond insurers and private investors over
legacy mortgage issues.
FACTS IN DISPUTE
West's speech comes one day after he and other Justice
Department officials met with Bank of America representatives
about a potential settlement, according to a person familiar
with the talks. Negotiators made little progress towards a deal
at the meeting, said the person, who declined to be named.
In his speech, West alluded to such meetings and said by the
time negotiations reach his desk, investigators and Justice
Department lawyers have already discussed facts and theories
with banks under investigation for months.
"By the time I am sitting across the table from a financial
institution to discuss whether we will settle or sue, there
aren't generally many facts that remain in dispute," he said.
West said the agency would litigate such cases if it did not
receive an admission of wrongful conduct, a substantial penalty
and some redress to those harmed.
In another apparent nod to Bank of America, West said banks
must do more to resolve the cases than seek a meeting with
Attorney General Eric Holder. Reuters reported last week that
the Charlotte-based bank was denied a meeting it had sought
between Holder and Bank of America Chief Executive Officer Brian
(Reporting by Aruna Viswanatha in Washington, with additional
reporting by Peter Rudegeair in New York; Editing by Karey Van
Hall and Cynthia Osterman)