Shareholders sue, judge refuses to dismiss suit
Pennsylvania Public School Employees’ Retirement System has filed suit in the U.S. District Court, Southern District of New York against Bank of America Corp, alleging that as shareholders, they were mislead about its exposure to risky mortgage security and its dependence on the mortgage electronic registry system (MERS). Judge William pauley in Manhattan has refused to dismiss the lawsuit, stating that the plaintiffs may pursue securities fraud claims for billions of dollars in alleged losses. Pauley did, however, dismiss several claims against current CEO Brian Moynihan, his predecessor Kenneth Lewis, and several executives, directors, and underwriters.
According to court documents, Pauley said allegations highlight a “strong inference” that Bank of America inentionally misled stockholders as to the extend of its reliance on MERS, as well as how vulnerable they were to mortgage buyback claims, internal controls, and compliance with accounting and securities rules.
Allegations that shareholders were intentionally misled
Court documents reveal allegations that the shareholders were misled into buying Bank of America stock in 2009 and 2010, including stocks sold to repay the $45 billion from the Troubled Asset Relief Program (TARP). Plaintiffs allege that the bank was aware it could not raise enough capital, and was aware it could be pushed into repurchasing billions of dollars of securities backed by risky loans, particularly from Bank of America-acquired Countrywide.
The allegations continue to state that the bank knew MERS’ system was so poorly run that the bank would not be able to foreclose legally on thousands of delinquent mortgages, but Bank of America has responded, stating they properly disclosed its use of MERS and had no obligation to disclose speculation of possible buybacks.
Not the pension fund’s first lawsuit
What has yet to be noticed is that this is not the pension fund’s first lawsuit as shareholders. In May of 2011, as they are suing for in the aforementioned lawsuit, the group sued dozens of financial entities to recover damages they allege resulted from undisclosed exposure to mortgate-backed securities. The case against Citigroup, Banc of America Securities, Barclay’s Capital, Credit Suisse Securities (SA), Deutsche Bank Securities, Fortis Bank, Goldman, Sachs & Col, HSBC Securities, JP Morgan Securities, Merrill Lynch, Morgan Stanley & Co., UBS Securities, Wells Fargo Securities, and over a dozen individuals was remanded by the judge to a lower court with an order to close the case, and the judge denied the pension fund any fees or costs.