NEW YORK -- Bank of America (BAC) has won the dismissal of an unusual lawsuit in which shareholders accused it of concealing a $10 billion fraud case brought by American International Group (AIG).
In a decision made public on Monday, U.S. District Judge John Koeltl in Manhattan said the second-largest U.S. bank and four officers, including Chief Executive Brian Moynihan, had not been required to disclose in advance the purported imminence or size of AIG's lawsuit.
AIG sued Bank of America on Aug. 8, 2011 over allegations that the bank misrepresented the quality of more than $28 billion of mortgage-backed securities it bought from the Charlotte, North Carolina-based bank and its Countrywide and Merrill Lynch units.
Bank of America shares fell 20.3 percent on the day the lawsuit was filed, which was also the first session after Standard & Poor's took away the United States' triple-A credit rating. U.S. stock indexes fell 5.5 percent to 6.9 percent that day.
Shareholders led by Camcorp Interests Ltd., a Houston-based investment firm, contended that Moynihan and other officials knew in February 2011, six months before AIG sued, of the insurer's claims and should have revealed them at the time.
But in a 50-page decision, the judge said details about the lawsuit were not materially different from what the bank had previously disclosed about its mortgage exposures.
He also said the bank made no incomplete or inaccurate statements, and had no duty to disclose what Camcorp wanted.
"The alleged omissions did not mislead investors because information about BoA's disclosure to MBS litigation generally, and AIG's claim in particular, was in the public domain," Koeltl wrote in a decision dated Nov. 1. "The overwhelming disclosure concerning BofA's broad exposure to MBS litigation renders the alleged omissions immaterial to a reasonable investor."
Jason Zweig, a partner at Hagens Berman Sobol Shapiro representing the plaintiffs, did not immediately respond to requests for comment.
Bank of America spokesman Lawrence Grayson said: "We are pleased with court's decision."
Analysts have said Bank of America has spent more than $40 billion on litigation and other mortgage expenses since buying Countrywide in July 2008 and Merrill six months later.
Last week, the bank said staff of a U.S. Attorney's office plans to recommend that the Department of Justice sue the bank over the packaging and sale of mortgage securities.
It also boosted its estimate of potential losses from legal and regulatory matters, above existing reserves, to $5.1 billion from $2.8 billion three months earlier.
The case is In re: Bank of America AIG Disclosure Securities Litigation, U.S. District Court, Southern District of New York, No. 11-06678.