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Bank of America settles bond insurer lawsuit for $375 million

Bank of America (BOA) agreed Tuesday to pay $375 million in a settlement with bond insurer Syncora Guarantee [corporate websites; press release] over claims that Syncora was misled into insuring toxic mortgage-backed securities of BOA-owned Countrywide Financial Corporation [NYT backgrounder]. Syncora filed a lawsuit against BOA and Countrywide in 2009 claiming that Countrywide had misrepresented the quality of the mortgages underlying the securities that Syncora agreed to insure. Syncora sued for fraudulent inducement and breach of contract [Reuters report], seeking to recover money paid out on its policies as a result of the bad loans for which Countrywide allegedly breached its representations and warranties. Syncora had paid out more than $145 million at the time the amended lawsuit was filed in 2010, and had given notice of an additional $257 million yet to be paid. In addition to the cash settlement BOA and Syncora transferred to the other certain assets and securities in efforts to terminate ongoing relationships between the two companies. BOA purchased Countrywide in 2008.

Last week a federal judge rejected a motion by BOA to dismiss a shareholder lawsuit [JURIST report] alleging BOA's purposeful concealment of the bank's exposure to billions of dollars in loan repurchase claims and its problematic reliance on an electronic loan registry. In 2009 the US Treasury Department [official website] issued a series of rules to restrict executive compensation [JURIST report] for firms that had accepted special assistance from the Troubled Asset Relief Program (TARP) [text]. As such, BOA executives had a strong motivation to repay the $45 billion in federal bailout funds the bank had borrowed, the funds for which they raised through an unusual stock offering. Plaintiffs claim that executives concealed BOA's exposure to billions of dollars in repurchase claims to ensure the offering's success, enabling repayment of the TARP funds and freeing the company from the federally imposed executive pay restrictions. In December BOA reached a $315 million settlement of claims brought by investors alleging they were misled with respect to mortgage-backed investments, and a $335 million settlement [JURIST reports] with the Department of Justice, relating to discriminatory lending practices. In June 2011 BOA announced an $8.5 billion settlement [JURIST report] agreement arising from claims that it had sold bad securities that contributed to the housing market collapse.

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