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Investors fail to sue Bank of America

Texas readers may be interested to know that investors with Bank of America cannot continue with a lawsuit against the company. The lawsuit alleges that the investors should have received a warning that American International Group Inc. was planning a suit against BoA over mortgaged-backed securities that amounted to losses in the billions of dollars.

AIG filed suit against BoA in late 2011 for approximately $10 billion in mortgage-bond investment losses. The group claims that it is the victim of a massive fraud. AIG further claims that BoA, along with Merrill Lynch and Countryside Financial Corporation, were misleading in their efforts to bundle mortgages into securities.

In this business litigation case, BoA is said to have correctly argued that any supposed omission didn't constitute misleading investors because the information about the company's exposure to the possibility of litigation from AIG was in the public domain. The judge said that BoA had warned investors that it was facing litigation risk. The judge also noted that the fact that AIG was known to be likely to file a suit and the estimated cost of such litigation was disclosed in the press by BoA and therefore available to the group of investors. This holds true, even if the specific information wasn't disclosed in the bank's public records.

BoA and several other large banks are thought to have created mortgage-based securities that were backed by substandard loans. The investments were based on credit ratings that disguised their actual risk. Bad bundles of mortgages have been an issue for investors since the recession of 2008. Many people and companies have faced substantial losses that may never be recovered. In some cases, litigation against the parties who knowingly sold overvalued securities might lead to the recovery of some of the losses.

Source: Bloomberg, "Bank of America Investor Suit Over AIG Claims Rejected", Christie Smythe, November 04, 2013

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