Federal judge refuses to dismiss the lawsuit against Bank of America

The Bank of America was dragged into litigation by the Pennsylvania Public School Employees’ Retirement System (PSERS) that filed suit in the U.S District Court, Southern District of New York against the bank. PSERS alleged that as shareholders, they were misled by the bank about its exposure to the risky mortgage security and its (bank’s) dependence on the mortgage electronic registry system (MERS).

The U.S. District Judge William Pauley in Manhattan refused to dismiss the lawsuit and allowed the investor plaintiffs to pursue securities fraud claims for billions of dollars in alleged losses. However, the federal judge dismissed several claims against the current CEO Brian Moynihan, his predecessor Kenneth Lewis and several of the underwriters, executives and directors. The plaintiffs alleged that the bank was in fact aware that it could not raise enough capital and therefore would be pushed into repurchasing billions of dollars of security that are backed by risky loans especially from Bank of America acquired Countrywide.

Further, allegations were made that the bank knew that the record keeping in Merscorp Inc’s private Mortgage Electronic Registration Systems registry was so poor that it would not be able to legally forestall on thousands of delinquent mortgages. However, Bank of America responded by stating that it had properly disclosed its use of MERS and that it had no obligation to disclose the speculative possibility of large buybacks.


Switch to our mobile site