On Monday, Kathy Patrick of Gibbs & Bruns filed a response to AIG's objection to the proposed global $8.5 billion Bank of America mortgage-backed securities settlement. In the 10-page brief, Patrick asserted, as she's previously said to me, that AIG is using its objection to the global deal as leverage in its simultaneously-filed securities fraud suit against BofA.
"Though AIG portrays itself as concerned only for the common good, events (not disclosed by AIG) suggest otherwise," Patrick wrote. "Specifically, on the same day it appeared here to object, AIG filed its own, $10 billion securities claim against Bank of America, which seeks recovery exclusively for itself. Thus, the court should consider whether AIG is seeking to destroy a settlement that would generate funds flowing to all investors in order to channel these funds to itself alone, or whether it is using its opposition as a bargaining chip to extract a settlement of its own lawsuit."
In its August 8 motion to intervene in the $8.5 billion proposed settlement, AIG attacked the negotiations between Patrick's 22-institutional investor group and BofA and Bank of New York Mellon (the trustee on Countrywide MBS offerings) as "collusive." Patrick's new filing insisted the talks were publicly known. "These discussions, which went on for months, were the subject of disclosures in Bank of America's securities filing and of press releases issued by the institutional investors," she wrote. Yet AIG, Patrick asserted, "never contacted counsel for the institutional investors to ask to join the group or inquire about its efforts."
Or did it? I've been told that a prominent Quinn Emanuel Urquhart & Sullivan partner did, in fact, reach out to Patrick last fall, soon after she announced the demand notice her group had served on BNY Mellon. By then Quinn was known to have poured substantial resources into investigating MBS claims and to represent major MBS noteholders. But Patrick didn't respond to the Quinn partner's call.
"We responded to investors who called us," Patrick told me when I asked her about the supposed call from Quinn Emanuel. "AIG never called us. No one ever contacted us on behalf of AIG." (BofA and the institutional investors have engaged in a similar tit-for-tat with objectors' counsel David Grais of Grais & Ellsworth, who either was or was not invited to participate in global settlement talks, depending on who you ask.) Interestingly, Patrick's filing in response to AIG said that AIG-which still hasn't disclosed its stake in Countrywide mortgage-backed certificates-signed confidentiality agreements with BofA and the institutional investors, but only after the settlement was announced.
The Patrick filing takes one more notable swipe at AIG, which has cloaked itself in the cause of the public interest because taxpayers are its majority shareholders. "To salvage AIG, the New York [Federal Reserve Bank]-one of the 22 institutional investors who support the settlement-'committed more than $180 billion to the rescue of AIG,'" Patrick wrote. "As part of that rescue, the New York Fed's Maiden Lane entities acquired from AIG billions of dollars of mortgage-backed securities issued by the [Countrywide] trusts. AIG's response to this deliverance is its current effort to destroy a settlement that benefits AIG's Maiden Lane benefactors and thousands of other innocent investors as well."
"AIG intervened to bring much needed transparency to the proposed settlement," said an AIG spokesman in an e-mail. "We hope the institutional investors and their counsel agree with the need for greater transparency and are prepared to allow AIG and the other intervenors to review the process by which the proposed agreement was reached."
Meanwhile, a completely different BofA litigation development may affect AIG's securities fraud suit-and all other MBS fraud litigation that names Countrywide as a defendant. The judicial panel on multidistrict litigation on Monday ordered federal court MBS cases against Countrywide to be consolidated before Judge Mariana Pfaelzer in Los Angeles. That's significant because, as I reported last week, Judge Pfaelzer has imposed strict time limits on MBS-related fraud claims against Countrywide. BofA-whose lawyers at Goodwin Procter argued for consolidation before Judge Pfaelzer-may have caught a huge break here: It's going to be tough for any claimants who haven't already filed MBS fraud suits in federal court to step up now. "We are pleased with the panel's decision," a BofA spokesperson told me.
I should note that AIG filed its $10 billion complaint against BofA in New York state court. I'm sure BofA will try to move it to federal court-and thus to Judge Pfaelzer-but I'm not sure it will succeed; both AIG and Merrill Lynch, which is a named defendant, are New York-based.
In the seemingly unending annals of BofA litigation, that will be a story for another day.
(Reporting by Alison Frankel)
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