Business Litigation - Written by Beasley Allen on Thursday, September 15, 2011 9:05 - 0 Comments

AIG Sues Bank Of America For $10 Billion

Insurer American International Group () has sued Bank of America Corp. in a New York state court, attempting to recover more than $10 billion of losses from a “massive fraud” on mortgage debt. , still largely owned by taxpayers after $182.3 billion of government bailouts, is the latest of a growing number of investors filing lawsuits to hold banks responsible for losses on soured mortgages that contributed to the financial crisis.

The Complaint accuses Bank of America and its and Merrill Lynch units of misrepresenting the quality of mortgages placed in securities and sold to investors. said it suffered its losses on $28 billion of investments. It was alleged that the “Defendants were engaged in a massive scheme to manipulate and deceive investors, like , who had no alternative but to rely on the lies and omissions made.”

Bank of America bought for $2.5 billion in July 2008 and acquired Merrill six months later. The acquisition is almost universally considered a disaster because of the costs of and writing down bad loans. The Charlotte, N.C.-based bank reached an $8.5 billion agreement to end most by investors who bought securities backed by risky home loans. Some of those investors have complained this agreement itself was unfair. According to the Complaint, filed by the 15 Plaintiffs in the latest suit, and officials like former Chief Executive Angelo Mozilo abandoned prudent lending, reserved too little for bad loans and inflated earnings, all in a drive to triple market share to 30% and enrich themselves.

In a statement, said it expects to file more lawsuits against other banks that “sought to profit at our expense.” Separately, plans to intervene in Bank of America’s $8.5 billion agreement to end most by investors, including BlackRock Inc. and Allianz SE’s Pimco, that bought securities backed by risky home loans. A growing number of investors has called the payout too low and claim that Bank of New York Mellon Corp., as trustee, did not negotiate fairly.

It was reported that New York General Eric Schneiderman is moving to block that settlement. Bank of America’s purchase of – either with knowledge of how bad that company had been or with no in-depth checking out of the company’s problem – has saddled the huge bank with tremendous problems and legal exposure. The trial judge has allowed a large number of investors to intervene in the case. A hearing has been scheduled by the court for November 17th.

Source: Insurance Journal

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