Bank of America (BoA) came a step
closer today to ending litigation that has plagued it since it bought
Countrywide Mortgage in 2008. A New York
State judge approved most of an $8.5 billion settlement agreement between the
bank and nearly two dozen mortgage securities investors which had itself been
the subject of litigation since it was first reached over two years ago.
The original suit involved claims
that over 500 securities backed by mortgages originated by Countrywide before
it was acquired by BoA were not of the quality promised in their prospectuses. Investors in the securities included Blackrock,
Inc., Pacific Investment Management Company (PIMCO) and American International Group (AIG).
Bank of New York Mellon Corp was
trustee for the investors and filed a petition with the courts in June 2011
seeking approval of the settlement.
However a dozen investors led by AIG objected on the basis that the
settlement resolved the claims for only pennies on the dollar and that the
trustee did not push aggressively enough for more money from BoA and had shirked
its duties in a process; making claims of conflicts of interest. The AIG group maintained that investor losses
from the securities totaled more than $100 billion.
New York State Supreme Court Justice
Barbara Kapnick presided over a nine week hearing regarding the settlement
after Bank of New York petitioned her to approve it under New York Article 77
which allows trustees to seek such approval for their actions. The bank said the settlement would save
investors years of uncertain and costly litigation.
In approving the agreement the judge
said the trustee "did not abuse its discretion in entering into the settlement
agreement and did not act in bad faith or outside the bounds of reasonable
judgment." However, she qualified her ruling by allowing some loan modification
claims by investors to go forward and said in those instances, the trustee
settled the claims "without investigating their potential worth or strength."
In a statement issued after the ruling AIG seized on
the judges exceptions, saying in part, "We are pleased that the court refused
to approve the proposed settlement in its entirety and found that the trustee
acted unreasonably in agreeing to compromise billions of dollars of investor
claims. We respectfully disagree with the other aspects of the court's ruling,
which are not supported by the record and which set a dangerous precedent that
could eliminate important protections for investors. This case is very far from
over because the settlement will not take effect until a variety of potential
post-trial motions and appeals are resolved."
Kapnick delayed the entry of the
ruling until Feb. 7.