Bank of America accused of misleading investors
Kevin McCoy, USA TODAY 1:33 p.m. EDT August 6, 2013


Federal prosecutors announced a civil lawsuit Tuesday against Bank of
America for allegedly failing to disclose risks and misleading investors
in a $850 million mortgage-bond deal offered in 2008.

The federal court complaint alleged that the bank lied to investors
about the relative riskiness of the mortgage loans that backed the
securities, made false statements and filled the offering with a
disproportionate amount of risky home loans originated through
third-party brokers.

The action filed in North Carolina also targeted Bank of America
affiliates Merrill Lynch, Pierce, Fenner & Smith and Bank of Bank of
America Mortgages Securities.

In a related lawsuit also filed there, the Securities and Exchange
Commission alleged that more than 70% of the mortgages in the Bank of
America offering originated with brokers unaffiliated with the giant
bank. Those mortgages had "vastly greater risks of severe delinquencies,
early defaults, underwriting defects and prepayment," the SEC said.

Both lawsuits focused on residential mortgage-backed securities — bonds
backed by a pool of residential mortgage loans packaged together at
varying levels of risk and sold to investors. Such deals played a
significant role in the U.S. real estate market collapse during the
financial crisis.

"Bank of America's reckless and fraudulent origination and
securitization practices in the lead-up to the financial crisis caused
significant losses to investors," said U.S. Attorney Anne Tompkins of
North Carolina's western district. "Now, Bank of America will have to
face the consequences of its actions."

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