In a legal setback to
Bank of America Corporation
), the U.S. District Judge Max O. Cogburn Jr ruled that the company
must face a lawsuit filed by the U.S Department of Justice (DOJ).
The lawsuit pertains to the sale of $850 million worth of
residential mortgage-backed securities (RMBS) in the years
preceding the financial crisis.
While giving the ruling in the favor of the DOJ, Cogburn granted 30
days to the complainant for filing a revised petition. Further, the
judge announced the continuation of a related case by the
Securities and Exchange Commission against BofA.
In Aug 2013, the DOJ had sued BofA under the Financial Institutions
Reform, Recovery and Enforcement Act (FIRREA). The company was
accused of misleading investors by selling faulty RMBS, 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, Cogburn.
Last week, 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. However, he added that
the DOJ might be offered another chance to reframe their charges.
Despite the ruling going against it, BofA still retains a chance to
challenge the amended case to be filed by the DOJ.
Of late, BofA has been embroiled in quite a few legal hassles.
Since the financial crisis, the company has been paying hefty fines
to settle lawsuits and repurchase securities, thereby severely
affecting its results.
Separately, BofA was 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. Although the
aforementioned lawsuit is not the main part of the bank's ongoing
negotiations, its upholding will likely further worsen the overall
scenario for BofA. Notably, the talks have presently hit a deadlock
after the DOJ refused BofA's $12 billion offer to settle the
BofA currently carries a Zacks Rank #4 (Sell). Some better-ranked
First Republic Bank
). Both these stocks hold a Zacks Rank #2 (Buy).
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