On Wednesday, Reuters reported that U.S. District judge William
Pauley in Manhattan refrained to cancel the legal charges made by
shareholders, led by a Pennsylvania school pension fund, against
Bank of America Corporation
), accusing it of misleading them. For this, the shareholders are
seeking billions of dollars in compensation.
However, the judge has dismissed several claims pertaining to the
executives and directors, including the CEO of BofA and many
The shareholders had alleged that BofA misinformed them about the
risks involved in perilous mortgage loans and its reliance on the
faulty Mortgage Electronic Registration System Inc. (MERS). Due to
this, the shareholders encountered huge losses. According to the
judge, the investigation concluded that BofA was indeed involved in
such fraudulent practices, and therefore he permitted the
shareholders to proceed with the lawsuit.
The officials at BofA have claimed that the disclosure regarding
the usage of MERS was properly made. However, the circumstances
suggest a different story.
During 2009-2010, the new issuance of shares by BofA included
shares issued to repay the dues related to Troubled Asset Relief
Program (TARP). To induce investors to invest in these shares, BofA
deliberately did not divulge any information relating to the
weakness of mortgage buyback claims, flawed internal controls and
compliances to various rules. Moreover, the bank's dependence on
MERS was not disclosed.
MERS, which provides database for mortgage servicers, has been
accused by the shareholders of sloppy record keeping. Its
performance was so disgraceful that it failed to furnish data for
legal foreclosures of several delinquent mortgage loans.
Therefore, the shareholders filed the lawsuit against BofA in the
U.S. District Court of New York.
Earlier this year, along with BofA, the New York Attorney General
JPMorgan Chase & Co.
Wells Fargo & Company
) into the court over fraudulent record keeping of mortgage loans
through MERS. The banks had tried to get these lawsuits dropped,
BofA's legal troubles look far from over. Dubious practices have
dented its reputation and litigation costs are bound to hurt its
financials to an extent.
Shares of BofA currently retain a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain a long-term Neutral recommendation on the stock.
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