Skip to main content

Judge Denied Bank of America’s Motion to Dismiss $850M Mortgage Fraud Case

Robert M. Siegel

Last week, Magistrate Judge David S. Cayer of the U.S. District Court for the Western District of North Carolina denied Bank of America’s motion to dismiss the Security and Exchange Commission’s claims against it in SEC v. Bank of America Corporation, et al. The SEC’s complaint is founded upon allegations that “[t]he Bank of America  entities misrepresented and omitted certain material facts regarding an RMBS [issuance], backed by more than $855 million of residential mortgages, known as BOAMS 2008-A, that was offered and sold in 2008.”

Bank of America supposedly portrayed the RMBS offering as being backed by “prime” mortgage loans. But according to the SEC, BOAMS 2008-A was rife with “wholesale” loans, a class of loans allegedly described as “toxic waste” by none other than Bank of America’s CEO at the time. The SEC claims that these “toxic” loans were originated through brokers unaffiliated with Bank of America, and deviated significantly from Bank of America’s own underwriting guidelines.

In denying Bank of America’s motion to dismiss, the Court found that the SEC’s Complaint alleged sufficient facts to establish the defendants’ material misrepresentations and omissions. In particular, the court took note of the SEC’s allegations that Bank of America revealed outside of the disclosure documents to certain of its investors (Wachovia and to the Federal Home Loan Bank-SF) that approximately 70% of the loan pool originated from the “wholesale channel.”  According to the Court, “[d]efendant’s decision to give the wholesale channel information to those investors creates the inference that the defendants knew or reasonably should have known that this information was material.”

YOU MIGHT ALSO LIKE
Development Conference March 15, 2023
Suzanne M. Amaducci and keynote speaker Jeff Krasnoff, Chief Executive Officer of Rialto Capital Management, discuss the state of real estate debt markets amid ongoing economic uncertainty at Bilzin Sumberg’s 4th Annual Development Conference.
Blog November 2, 2022
As claims based on pre-2008 loans sold and securitized in residential mortgage-backed securities (RMBS) trusts are still being resolved, industry analysts are bracing for a new wave of indemnification claims and put-back attempts. Credit Suisse Securities and Bank of America have both agreed to make...
Blog February 18, 2022
Last week, the U.S. District Court for the Southern District of New York dealt a major blow to mortgage investors in two parallel actions pending for the past few years. The impact proved to be fatal to one of the actions, which was dismissed in its entirety. The other one was barely left standing. ...
VIEW MORE