Breathing respite for
Bank of America Corporation
), U.S. District Judge Max Cogburn hinted that he may turn down a
lawsuit filed by the U.S Department of Justice (:DOJ) against the
banking bellwether. The news was reported by
. The lawsuit pertains to the sale of risky residential mortgage
backed securities (:RMBS).
In Aug 2013, the DOJ had sued BofA underlying Financial
Institutions Reform, Recovery and Enforcement Act (:FIRREA). The
bank was accused of misleading investors by selling faulty RMBS
worth $850 million, thereby resulting in huge losses for them.
Investors purchasing these securities included Wachovia Bank
National Association, which was later acquired by
Wells Fargo & Co.
) and the Federal Home Loan Bank of San Francisco.
Later in Mar 2014, the U.S. Magistrate Judge, David Cayer, had
suggested the dismissal of the case. However, his recommendation
was subject to review by District Judge, Max Cogburn.
According to Cayer, the allegations by the DOJ did not meet certain
criteria. It was alleged that the bank had presented false
statements to government agencies. However, the investors -
Wachovia and the Federal Home Loan Bank of San Francisco - were not
government agencies. Moreover, the FIRREA Act is not concerned with
malpractices associated with the sale of securities.
Though Cogburn did not assign a formal ruling, he supported Cayer's
suggestion and mentioned that the DOJ seems to lack enough evidence
to support the claim. He added that the DOJ might be offered
another chance to reframe their charges.
Further, Cogburn also indicated the lawsuit filed by the Securities
and Exchange Commission (:SEC) on a similar pretext would, however,
continue. This likely verdict is also in line with Cayer's
recommendation regarding the same.
Separately, BofA is in talks with the DOJ and many states to pay at
least $12 billion in a bid to settle several litigations and probes
related to its pre-crisis mortgage practices. Though the
aforementioned lawsuit related to the sale of RMBS is not the main
part of the bank's ongoing negotiation, its upholding might worsen
the overall scenario for BofA.
BofA has lately been embroiled in legal hassles. Since the
financial crisis, the Wall Street Biggie has paid hefty fines to
settle lawsuits and repurchase securities, thereby severely
affecting its results.
If the lawsuit filed by DOJ is eventually dismissed, it might
reduce the legal hassles for the company to some extent. However,
BofA will be still left grappling under substantial legal burdens.
BofA currently carries a Zacks Rank #5 (Strong Sell). Better-ranked
BofI Holding, Inc.
Central Pacific Financial Corp.
). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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BANK OF AMER CP (BAC): Free Stock Analysis
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