The United States Department of Justice (DoJ) and Securities and Exchange Commission (SEC) have filed separate lawsuits against Bank of America Corp (NYSE:BAC) on Tuesday alleging the bank of defrauding investors related to $850 million in mortgage backed securities (MBS).
Accusations against Bank of America
According to the complaint filed by Justice Department, Bank of America Corp (NYSE:BAC) misinformed the investors on the risk related to the mortgage loans, which the bank attached to large residential mortgage backed securities it marketed in early 2008.
Bank of America, according to the complaint, “made false statements after intentionally not performing proper due diligence and filled the securitization with a disproportionate amount of risky mortgages originated through third party mortgage brokers.”
In 2008, financial meltdown was caused due to loop reaction when homeowners were unable to pay their mortgages. Wall Street Banks suffered a jolt when loans were defaulted on mortgage backed securities packed with those loans as investments. This shocked the World economy.
U.S. Attorney for the Western District of North Carolina Anne M. Tompkins said in a statement that investors suffered a huge loss because of Bank of America’s irresponsible and fraudulent securitization practice, during the time of the financial crisis. She added that Bank of America will now face those charges.
Bank of America held back information
Bank of America Corp (NYSE:BAC) mentioned in its SEC filing last week that the suits were pending. In the SEC filing, Bank of America mentioned that it could not tell around 70 percent of investors that mortgages backing the offering in question — called BOAMS 2008-A — originated through the bank’s “wholesale” channel of mortgage brokers, which was not affiliated with Bank of America entities.
According to SEC, these holding back of information by Bank of America affected the return to investors in residential mortgage backed securities as the bank only disclosed part of information to few institutional investors.
“Bank of America never disclosed this material information to all investors and never filed it publicly as required under the federal securities laws,” according to the SEC.
George S. Canellos, co-director of the SEC’s Division of Enforcement said in a statement that Bank of America transferred its risk of loss to investors and then did not take proper responsibility to make necessary disclosure.
Bank defends the accusations
Bank of America Corp (NYSE:BAC) spokesman Lawrence Grayson defending the bank said that the investors in question did have access to the data to gather all information, and this “we will demonstrate.” Also, the loans from the bank performed better than the loans of similar characteristics offered by other financial institutions. He added that the bank is not responsible for the housing market collapse.
The shares for the second largest bank of the United States declined 16 cents, or 1.08 percent at $14.64, yesterday.