(June 21, 2011) — US District Judge Jed Rakoff, ruling in the matter of Bank of America Corp’s Merrill Lynch mortgage-backed securities actions before and during the financial crisis, has certified class-action status for a group of 1,800 investors.
The certified class includes buyers of 301 tranches of mortgage-backed securities in 18 separate offerings from February 2006 through September 2007, Bloomberg has reported. The named plaintiffs in the case include the Mississippi Public Employees’ Retirement System, the Los Angeles County Employees Retirement Association, the Wyoming State Treasurer, the Connecticut Carpenters Pension Fund and the Connecticut Carpenters Annuity Fund. The original litigation was filed in 2008, accusing Merrill of misleading them with untrue statements regarding mortgage-based securities. According to the Bloomberg, US District Judge Jed S. Rakoff in Manhattan also granted the investors’ request to appoint New York-based Bernstein Litowitz Berger & Grossmann LLP as lead lawyers for the class.
“After careful consideration, and for reasons that will be stated in a forthcoming written opinion, the court hereby grants both motions,” Judge Rakoff wrote in an order released June 16, obtained by Bloomberg.
Further Lawsuits
This is far from the only lawsuit brought by pension funds against investment banks that is working its way through the legal system. Bank of America – which purchased Merrill Lynch in September 2008 – as well as countless other financial institutions have battled a series of suits over their actions during the financial crisis that relate to lack of disclosure and harming shareholders, as they face heightened scrutiny over mortgage-bond deals.
In January of last year, the bank faced a lawsuit over its decision to acquire Merrill Lynch in 2008. The US Securities and Exchange Commission accused BofA of violating federal rules by failing to disclose extraordinary losses at Merrill before shareholders voted on a merger of the companies on Dec. 5, 2008. Merrill lost $4.5 billion in October 2008 and billions more in November of that year. Merrill later reported a net loss of $27.6 billion for 2008.
More recently, the New York State Common Retirement Fund announced a $4.25 million settlement with Bank of America Corp. and two former Merrill Lynch executives in January. Based on court documents filed in July in US District Court in New York, the defendants attempted to hide the extent of the company’s involvement in risky subprime mortgage-backed securities, artificially inflating the value of the stock. The result: Major investor losses once the firm’s risky subprime exposure became apparent. The settlement additionally covers two former Merrill executives — company officials E. Stanley O’Neal and Jeffrey N. Edwards.
“The Fund was misled about the extent of Merrill Lynch’s participation in the subprime mortgage fiasco; that is unacceptable,” State Comptroller Thomas P. DiNapoli, trustee of the $132.8 billion state and local employee retirement fund, said in a statement. “I am responsible for protecting the secure retirement of more than one million system members, and I take that duty seriously. I am confident that this settlement makes up for a large part of the Fund’s losses. This sends a message that we will always fight to protect the best interests of our members.”
Also in January, the State of Michigan sued Bank of America Corp.’s Countrywide Financial unit in a bid to recover $65 million for its public pension funds.
“Protecting the hard-earned dollars of Michigan taxpayers from fraud is one of my top priorities,” said Attorney General Bill Schuette in a statement. In the complaint, the Attorney General’s office claims that Countrywide had effectively become a subprime lender while telling investors that it continued to maintain stringent mortgage loan underwriting standards that differentiated it from its competitors and subprime lenders. While Countrywide assured the market that it should not be impacted by a downturn in the housing market, Countrywide’s stock price dropped about 90%, from over $35 per share to about $5 per share between March 12, 2004 and March 7, 2008.
“Countrywide’s stock was artificially inflated during the class period because defendants made these false and misleading statements, which concealed their fundamental shift in core mortgage-related business strategy,” stated the release from Schuette’s office. “In addition, Countrywide also misstated their financial statements because reserves for loan losses, representation and warranty liability were materially understated.”
<p>To contact the <em>aiCIO</em> editors of this story: Kip McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a> and Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a></p>