A recent lawsuit filed on behalf of investors named Charlotte, North Carolina-based Bank of America and its recently acquired Countrywide Financial unit as parties to "massive fraud."
The lawsuit was filed in New York Supreme Court late last month by 12 separate investment firms, alleging officials at Countrywide provided misleading information to investors on securities backed by mortgages. In the suit, these investment firms claimed to have purchased hundreds of millions of dollars worth of such securities on behalf of their customers from Countrywide over a recent two-year period.
The firms suing Countrywide allege that misinformation was intentionally and recklessly provided to them to foster misconceptions about the health of the securities they were purchasing for clients. The plaintiffs in the case companies claim to have relied on prospectuses, term sheets and other industry-specific forms of documentation that all painted the picture of these securities being low-risk vehicles for investment with higher underwriting standards than were actually present.
The lawsuit also names various former executives as defendants in the case. As one of the defendants, Countrywide's co-founder and former CEO Angelo Mozilo is receiving a large portion of attention in the case. Back in October, Mr. Mozilo settled out of court for a large sum after being accused by SEC of misleading investors in this matter. He and other top executives elected to settle out of court rather than admitting any wrongdoing.
This course of action taken by the executives last fall will make it more difficult for the investment companies' attorneys currently suing the men to prove their guilt in the matter. It will be interesting to watch this case unfold in the news.
Source: Bloomberg "Countrywide Accused in Lawsuit of 'Massive Fraud'' by Karen Freifeld 1/25/11