The Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) announced parallel lawsuits against Bank of America Corporation and its affiliates: Merrill Lynch, Pierce, Fenner & Smith Corporation; Bank of America, N.A.; and Banc of America Mortgage Securities, Inc. (collectively “Bank of America”). The lawsuits allege that Bank of America made material misrepresentations and omissions about the nature and risks of a residential mortgage-backed securities (“RMBS”) offering to investors.
According to the complaints, Bank of America conducted an $855 million RMBS offering in 2008 that it marketed as a prime offering suitable for conservative investors. The SEC and DOJ allege that Bank of America deceived investors about the quality and risk of the underlying mortgages. Specifically, it is alleged that Bank of America failed to disclose that more than 70% of the underlying mortgages were originated through wholesale mortgage brokers unaffiliated with Bank of America and were riddled with ineligible appraisals, misrepresentations about owner occupancy, incorrectly calculated debt-to-income ratios, and evidence of mortgage fraud. It is also alleged that Bank of America failed to conduct loan level due diligence as required by its own policies and procedures and industry standards.
According to the Complaints, the losses suffered by the Bank of America RMBS investors exceed $100 million.