In today's Bank of America MBS settlement news, we have a tale of biting the hand that feeds you. The story begins back in the rosy days before the subprime mortgage meltdown, when a collateralized debt obligation manager called ICP Capital put together a series of mortgage-backed CDOs called Triaxx. The Triaxx notes were insured by the now-notorious AIG Financial Products division. So when the federal government bailed out AIG in 2008, the New York Federal Reserve acquired AIG's portfolio, including senior notes in two Triaxx CDOs with an original face value of $5.8 billion. Almost three years later, the Fed still has a big stake in Triaxx. One might also assume that Triaxx, in turn, has a big obligation to the Fed, which is the largest noteholder in those two CDOs.

In 2010 the Securities and Exchange Commission sued ICP for securities fraud, claiming (among other things) that the CDO manager deliberately overpaid for bonds in the Triaxx CDOs. ICP hired Williams & Connolly and is defending the suit in Manhattan federal court. But that's a different story. I'm interested in a new adventure for the Triaxx CDOs. It turns out that one of Triaxx's investments was $2.2 billion in 26 Countrywide MBS trusts. That makes Triaxx an interested party in Bank of America's proposed $8.5 billion settlement with Countrywide MBS noteholders. And guess what? Triaxx has doubts about the deal. In a petition to intervene filed Wednesday, Triaxx's lawyers at Miller & Wrubel said that the Triaxx CDOs are not convinced the Countrywide MBS deal was negotiated in good faith and is fair to all noteholders.

Like its old friends at AIG, which has also registered its objection to the Countrywide MBS settlement, Triaxx cited the $85 million that Gibbs & Bruns -- counsel to the 22 big institutional investors supporting the settlement -- will receive if the deal is approved. Triaxx argued that the fee, which will be paid by Bank of America rather than Gibbs & Bruns's clients, gives the institutional investors and their lawyers an incentive to back the settlement. "As the Triaxx respondents are paying for their own counsel," the Triaxx filing said, "[their] interests are not aligned with [those] of the institutional investors."

Here's the irony: One of the institutional investors in the Gibbs & Bruns group is none other than Triaxx's own biggest noteholder-Maiden Lane, the New York Fed vehicle that acquired AIG's portfolio, including AIG's stake in two Triaxx CDOs. Maiden Lane, in fact, was part of the committee that negotiated the Countrywide MBS settlement with BofA and Bank of New York Mellon, the Countrywide MBS trustee. So in questioning the deal, Triaxx is basically second-guessing its biggest investor, not to mention savior. How's that for gratitude?

Triaxx counsel John Moon of Miller & Wrubel declined comment.

(Reporting by Alison Frankel)

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