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In a major setback for Bank of America, a federal judge has moved the venue for their $8.5 billion settlement with investors on mortgage-backed securities issues to federal court. In so doing, the judge criticized the arrangement on a variety of fronts.
BofA hoped to do away with all of their investor liability on Countrywide MBS in one fell swoop with the settlement, negotiated with only a small sliver of institutional investors through the trustee, Bank of New York Mellon. Other investors, as well as the Attorneys General of New York and Delaware, criticized the deal and took BofA and BNYM to court over it. Keep in mind that the $8.5 billion settlement represented around 2-3 cents on the dollar for the total pool of mortgage securities affected. By point of comparison, yesterday Citigroup settled an SEC civil complaint on a $1 billion mortgage deal (similar to the Abacus deal, where Citi stuffed a bunch of bad mortgages into a pool, sold them to investors, and bet the other side) with a $285 million settlement. The Citi deal was a different kind of fraud scheme, but the percentages involved in the settlement are far more reasonable than what BofA is trying to get away with.
This probably extends the uncertainty for BofA, as the federal court case will take more time. But it also takes the case out of a venue that looked like an easy mark for them. The state judge assigned to the case in New York had a history of bank-friendly rulings. By contrast, US District Court Judge William Pauley in this case blistered the participants in the settlement in yesterday’s ruling. Here was his first paragraph:
“The Bank of New York Mellon, as trustee for hundreds of trusts, seeks to dispose of billions of dollars in toxic mortgage claims through an arcane summary procedure in state court. The question presented is whether this mass settlement, which implicates core national interests in the integrity of the financial markets, is immune from review in federal court.”
It goes downhill from there.
Specifically, Walnut Place, a collection of investors unhappy with the settlement, sought the move to federal court, and Pauley allowed it. He questioned the Article 77 proceeding sought by Bank of New York Mellon as inappropriate for the settlement, and he criticized Bank of New York Mellon for their massive bad-faith operating, claiming to be acting for investors but avoiding identifying the participants. A preliminary hearing in the case will come November 3.
In another setback for BofA, California has subpoenaed the bank for documents related to selling and marketing mortgage backed securities to state investors. That was the initial salvo by NY AG Eric Schneiderman in his investigation of the banks. CA AG Kamala Harris appears to be moving in the same direction.
The state is trying to determine whether the bank and its Countrywide Financial subsidiary sold investments backed by risky mortgages to institutional and private investors in California under false pretenses, according to the person, who was not authorized to speak publicly and requested confidentiality [...]
Many of these investments plunged in value as the housing market collapsed. Under California’s False Claims Act, which makes it a crime to defraud the state, damages of up to three times the amount of the claim can be awarded if the victim was an institutional investor, such as one of the state’s pension funds.
This is the state version of a representations and warrants case. It would mean a lot of money for BofA, just adding to their troubles.
No wonder they tried to put their derivatives exposure on the FDIC this week.
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Hey Dday! you might want to correct your title. The settlement moved to FEDERAL court.
I’m not sure this is good. In federal court, that means ObamaLLP can get involved and they’re all for anything that can be called a settlement that won’t also impact major political contributors. And appeals go to a set of Supremes who consider a corporation a person.
Boxturtle (Otoh, BofA didn’t want this, so it’s a good sign)
Bank finds biased state court to rip off clients. Banks shift $75 Trillion in Credit Default Swaps to first position under FDIC insured division so taxpayers are positioned to bail out the bank!
Ding.
Nothing good for real peeps will happen in federale court system. (Apologize for tying comment into stereotype of Latin American courts, but went thru a 20 year will settlement case in Brazil, and it’s a miracle I have any hair left.)
The problem with federal court system is that the end of the line is the same group of facists that appointed dur chimpfurher prez with a sham ruling that literally says (I paraphrase):
You cannot tell who wins an election by actually counting the ballots.
DDAY thank you for staying on the $75 Trillion story.
The banksters must see an easy decision in the NY state court. If the banks legal team preferred the state court (maybe the fix was in). Please look at the appeals court that is above the District court. The rules and proceedures vary widely. Been there done that.
I would like a legal opinion on that. Maybe we could ask some of our own legal commenters?
But once out of the state courts, you can assume this goes to SCOTUS if the ruling goes against the banksters.
And a decision against the banks at state level (HA HA) would have been taken to the federal system next too.
My point – the game is fully rigged, but I am not criticizing anyone for pointing out minor victories we may achieve along the way.
And does anyone really want to bet that they would uphold or issue a decision that goes against the 1 percent?
I am just glad that on this site, no obamabot will jump in and proclaim that’s why we all have no choice but to goose-step towards chimpy’s fourth term.
dude. read again…..before mouthing off….it says moved FROM state court,,,,,
Are there any left or have they all fled?
It’s harder to bribe a federal judge, but most lean to the right naturally, and the top boys, well, you know.
it is a very minor “victory” since diversity of the claimants made forcing it to Federal from state a no-brainer for the judge. I doubt BofA expected a State Court ruling that was not appealed to the Federal court – this just cuts down the time to get into the Federal Courts.
I did see the pension fund case decisions last week – BofA should be happy and doing a dance today as the court saw the buyers as sophisticated under the 1940 Act and not needing excessive hand holding. It is likely the same ruling will be made in the Federal Courts – at the USSC level if need be.
Of course talk radio on the left last night was all over the “trillions” – making the left look a bit unlearned. But Mike Malloy, who is not my cup of tea because of many things, did not embarrass the left as he noted that the transfer of assets just added risk to the portfolio, and did not put the government on the line for “trillions” – albeit risk does mean assets can go either way and if they go south there is the need to cover the deficit of insured deposit liabilities over the then asset value. He was pushing the idea of pulling uninsured deposits out of BofA – guess he is just trying to help :-)