Dec 6 (Reuters) - Bank of America Corp agreed
to pay $315 million to settle claims by investors who said they
were misled about mortgage securities offerings by its Merrill Lynch unit.
The proposed class-action accord is one of the largest
settlements of investor claims against banks over seemingly
safe mortgage-backed securities that later proved toxic as
credit and housing conditions worsened.
It is also the latest step in Bank of America's efforts to
address its legal liabilities stemming from its purchases of
Merrill in January 2009 and the mortgage lender Countrywide
Financial Corp six months earlier.
Bank of America is based in Charlotte, North Carolina, and
is the second-largest U.S. bank by assets.
Lawrence Grayson, a bank spokesman, declined to comment on
the settlement. Lawyers for the investors were not immediately
available to comment.
The settlement resolves claims by investors, led by the
Public Employees' Retirement System of Mississippi pension
fund, that Merrill misled them about the risks of $16.5 billion
of mortgage-backed securities in 18 offerings made between 2006
and 2007, before Bank of America bought the company.
The investors said their damages could total billions of
dollars, citing a consultant's estimate.
Bank of America did not admit wrongdoing in agreeing to
RAKOFF TO RULE
Reuters in mid-November reported the size of the
settlement, citing an unnamed source.
The settlement was disclosed publicly late Monday night in
court papers filed in U.S. District Court in Manhattan. The
accord requires approval by Judge Jed Rakoff.
Rakoff last week rejected a $285 million settlement between
the U.S. Securities and Exchange Commission and Citigroup Inc,
attacking the regulator's practice of letting companies settle
cases without admitting they did anything wrong.
It is unclear whether the judge might apply similar
reasoning in the Merrill settlement, which could result in
disruptions to other private mortgage securities litigation.
The government is not part of the Merrill settlement, which
resolves private litigation.
"His perspective is different because he doesn't have to
look at the public interest," said J. Robert Brown Jr, a
professor at the University of Denver's Sturm College of Law.
"I don't expect him to be particularly bothered by the
absence of an admission," Brown added. "He'll review the
substance and determine whether the terms are reasonable for
COUNTRYWIDE, INDYMAC, NEW CENTURY
Investors alleged that Merrill's offering documents misled
them about the quality of loans backing their investments,
including that they complied with underwriting guidelines.
They also said the investments did not deserve their
original investment-grade ratings, being backed by loans from
such lenders as Countrywide, Merrill's First Franklin Financial
unit, and the now-bankrupt IndyMac Bancorp Inc and New Century
Financial Corp. Most later fell to "junk" status, they said.
The case is separate from litigation over Countrywide
mortgage debt being handled by a Los Angeles federal judge.
It is also separate from Bank of America's proposed $8.5
billion settlement with investors in 530 mortgage trusts with
$174 billion of unpaid principal. That accord was negotiated by
Bank of New York Mellon Corp as trustee.
The case is Public Employees' Retirement System of
Mississippi et al v. Merrill Lynch & Co et al, U.S. District
Court, Southern District of New York, No. 08-10841.
Counsel for the lead plaintiff: David Stickney of Berstein
Litowitz Berger & Grossman.
For defendants: Jay Kasner of Skadden, Arps, Slate, Meagher
(Reporting by Jonathan Stempel; Additional reporting by
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