Bank of America's $8.5 Billion Settlement Heads for Court Showdown

Bank of America lawsuit
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By Karen Freifeld

NEW YORK -- A long-running fight comes to a head Monday when court proceedings begin over an $8.5 billion settlement between Bank of America and investors in mortgage securities that turned sour in the financial crisis.

Bank of America (BAC) agreed to the proposed settlement in June 2011 to resolve claims by investors who held bonds issued by mortgage lender Countrywide Financial, which Bank of America bought in 2008.

Twenty-two institutional investors, including BlackRock (BLK), MetLife (MET) and Allianz SE's Pacific Investment Management Co. entered into the deal. But American International Group (AIG) and others objected, saying the settlement offered them only a fraction of the money they lost.

Justice Barbara Kapnick of New York State Supreme Court, who will decide the case without a jury, has set aside the first two weeks of June to hear the case.

If she rejects the settlement, the parties could face years of litigation.

Kathy Patrick, who will argue for the institutional investors who negotiated the deal, said objectors comprise only seven percent of certificate-holders.

"There is massive support for this settlement," Patrick said in arguments during a last-minute appeal last week.

The proposed deal "offers pennies on the dollar," Colorado attorney Daniel Reilly, who represents AIG, said during last week's arguments.

More than 20 AIG entities and the home loan banks of Boston, Indianapolis and Chicago are among 65 opponents of the settlement, he said.

The opponents say losses to the trusts might exceed $100 billion, according to court papers. They claim BNY Mellon placed its interests and those of Bank of America above certificate- holders. They point out BNY Mellon gets trust business from the bank.

The case was filed by Bank of New York Mellon Corp. (BK), the trustee for some 530 trusts that held the securities, asking the court to approve the settlement and declare it binding on all beneficiaries.

Matthew Ingber, who represents BNY Mellon, is expected to argue the trustee has the right to settle claims and exercised good faith judgment in deciding the settlement was reasonable.

"We believe this $8.5 billion settlement is in the best interests of all the certificate-holders," Ingber said during last week's appeal.

In the two years since it was filed, the case has been a frenzy of activity.

An investor group that opposed the settlement, led by Boston-based Baupost Group, moved the case to federal court in the hope of getting a higher payout. The attorneys general of New York and Delaware voiced their opposition to the deal and New York accused trustee BNY Mellon of fraud.

Then the pendulum swung in the other direction. A U.S. appeals court sent the case back to state court, Baupost, operating under the name Walnut Place, withdrew its objections and New York dropped the fraud claims. Last month, the two attorneys general also withdrew their objections to the deal.

A ruling could take months after the trial is completed.

The case is In re: Bank of New York Mellon, New York State Supreme Court, New York County No. 651786/2011.

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Who's fault was it?

June 04 2013 at 2:34 AM Report abuse rate up rate down Reply

You getl 100's and 100's for billions, and only have to pay back 8.5 billion--------must be nice to be a govement/regulator connected banker

And no jail time to boot---must be nice

June 04 2013 at 12:13 AM Report abuse +1 rate up rate down Reply

Watch "Inside Job" or The Secret of OZ. Where are the homeowners billions oh yea they don't have high priced lawyers. Bernie Madoff did a ponzi scheme similar to what the bankster did to the economy, why did he go to jail? He cheated Rich People! Oh yea and the American gov didn't bail him out.

June 03 2013 at 6:40 PM Report abuse +1 rate up rate down Reply
jeff becker & Co

Isn't it amazing how the Big Money Trail fights for even MORE money. Forget the middle class who got creamed with these crooked banks, and they ARE crooked. AIG? Fighting for more money?
We already bailed them out. What a mess they are, but Bank of America buying Countrywide? They shouldn't have done it. And the CEO knows this. Bad business move so they should pay.
We the people are all disgusted with the crookedness of these banks including Citi and Chase.

June 03 2013 at 5:07 PM Report abuse +2 rate up rate down Reply

The politicians and the courts protect the crooked banks and the tax payer pays for it all. I wonder if these so called settlements against banks wall street, etc are tax deductable?

June 03 2013 at 1:38 PM Report abuse rate up rate down Reply
Jay Rigney

Investing in bad loans?? Investing in peoples misfortune and bad luck as well as bad decisions? They were hoping for a profit and they got burned? Now they want the government to bail them out? I hope they all go belly up and lose every penny. No one feels bad for those that try to profit off
the failures of others. Like the mortgages, it was a risk, and they lost. Suck it up and deal with it.

June 03 2013 at 12:51 PM Report abuse rate up rate down Reply

Had B of A not purchased Countrywide, the bondholders would have lost everything. This is just another case in which the only winners will be the lawyers. Countrywide was one of the major companies writing bad mortgages. The stockholders and bondholders made a bad investment and now they are looking for someone else to blame for their loss. This seems to have become the American way. No individual responsibility. My problems must be the result of someone else's action.

June 03 2013 at 11:25 AM Report abuse +1 rate up rate down Reply
1 reply to nbijohn's comment

Are you suggesting Bank of America purchased Countrywide, to help the bond holders? What fairy tale land do you live in? And as far as individual responsibility, yes we have a responsibility to stay away from crooks, but when we get robbed, we call the cops. It these cases the lawyers. Lawyers are on everyone's **** list, until you need one.

June 03 2013 at 1:27 PM Report abuse -2 rate up rate down Reply