Federal judge allows SEC case against Bank of America to go forward
06/19/2014 6:52 PM
06/19/2014 8:59 PM
A federal judge on Thursday allowed a Securities and Exchange Commission lawsuit against Bank of America to go forward, in a case that alleges fraud in the sale of bonds backed by millions of dollars in home loans.
U.S. District Judge Max Cogburn also ruled on a related case brought by the U.S. Department of Justice. A federal magistrate judge had recommended dismissal of that suit, but on Thursday Cogburn granted the department 30 days to file an amended version.
The suits were both filed last August in federal court in Charlotte. The SEC and DOJ alleged the Charlotte-based bank concealed information from investors about the risks of the loans that were packed into securities.
According to the civil complaints, the bank told investors the securities were backed by so-called prime mortgages when they were actually much riskier.
In court documents, Bank of America has described the investors as “sophisticated” and having “substantial experience investing in residential mortgage-based securities.” The bank said it “extensively documented the array of risks the investors would face” if they bought the securities.
Five investors, including Charlotte-based Wachovia Bank, bought roughly $850 million worth of the securities from Bank of America in 2008, according to court filings. Losses to investors are expected to total $120 million, according to the filings.
Federal magistrate judge David Cayer, in a nonbinding recommendation, said in March that the Justice Department’s suit should be dismissed for various reasons, including for not meeting the requirements for a case that involves false statements to a government agency.
The cases are the first brought by federal authorities in connection with prime mortgages, as opposed to the subprime mortgages that have been the subject of litigation against financial institutions since the financial crisis.
Bank of America spokesman Lawrence Grayson declined to comment. A spokeswoman for the Department of Justice also declined to comment.
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