Bank of America Corp (NYSE:BAC), intent on shaking off the string of lawsuits that have been hounding it since the financial crisis, appears to be entrapped in a new legal battle with American International Group Inc (NYSE:AIG). Mariana R. Pfaelzer, a federal judge in California, ruled in favor of AIG saying that the insurer has the right to pursue its fraud claim against BAC, NY Times reports.

AIG Permitted To Pursue Fraud Claim Worth $7B Against Bank of America

Bank of America Corp (NYSE:BAC) Committed Fraud

The lawsuit alleges that Bank of America Corp (NYSE:BAC) committed fraud by selling $7 billion worth of mortgage backed securities to American International Group Inc (NYSE:AIG) under duress in 2008. The instruments were sold to AIG through the bank’s notorious Countrywide unit.  BofA challenged AIG’s right to sue by saying that the insurer giant overrode its claim to the securities when it sold them to Federal Reserve.

In response to the court’s ruling, BofA’s spokesperson said that the ruling provided the bank with the chance to pursue additional recovery before litigation starts. Federal Reserve has been going back and forth on its stance as to which group had the right to pursue fraud claims against BofA.

In its latest testimony the Fed said that they had intended to receive the rights to fraud claims, however based on an earlier deposition the Fed was unable to produce any evidence that any such agreement was chalked out between itself and AIG. Similarly the Fed has at one time said that the right to seek damages was held by American International Group Inc (NYSE:AIG) and then later negated its own statement by saying that the it had the right to seek litigation claims.

Bank of America Corp (NYSE:BAC) has been fighting on multiple fronts these days. Just yesterday, BofA finally reached a $1.6 billion settlement with MBIA Inc. (NYSE:MBI) in an extended dispute. On May 30, the decision on a $8.5 billion settlement between BofA and its 22 institutional investors will be announced by the state court of New York.

Earlier the New York and Delaware attorneys general and the U.S. housing regulator dropped their objections to the $8.5 billion settlement. However there are still some investors who have been saying that the payment agreed on by Countrywide is too less compared to the damages.

American International Group Inc (NYSE:AIG) is one of the dissenting parties,  so a green light on the settlement would be a good news for the bank.