federal court complaint alleged that the bank lied to investors about
the relative riskiness of the mortgage loans that backed the securities,
made false statements and filled the offering with a disproportionate
amount of risky home loans originated through third-party brokers.
action filed in North Carolina also targeted Bank of America affiliates
Merrill Lynch, Pierce, Fenner & Smith and Bank of Bank of America
In a related lawsuit also
filed there, the Securities and Exchange Commission alleged that more
than 70% of the mortgages in the Bank of America offering originated
with brokers unaffiliated with the giant bank. Those mortgages had
"vastly greater risks of severe delinquencies, early defaults,
underwriting defects and prepayment," the SEC said.
lawsuits focused on residential mortgage-backed securities - bonds
backed by a pool of residential mortgage loans packaged together at
varying levels of risk and sold to investors. Such deals played a
significant role in the U.S. real estate market collapse during the
"Bank of America's reckless and fraudulent
origination and securitization practices in the lead-up to the financial
crisis caused significant losses to investors," said U.S. Attorney Anne
Tompkins of North Carolina's western district. "Now, Bank of America
will have to face the consequences of its actions."
America said in a statement that the loans performed better than similar
ones originated at the same time by other institutions. "We are not
responsible for the housing market collapse that caused mortgage loans
to default at unprecedented rates and these securities to lose value as a
result," the bank said.
Separately Tuesday, Swiss banking
giant UBS agreed to pay nearly $50 million to settle allegations that it
misled investors in a 2007 mortgage-bond deal that went bad as the U.S.
real estate market imploded.
The SEC said Switzerland's
largest bank agreed to the settlement after the bank kept $23.6 million
in upfront payments it received while acquiring collateral for the deal
without investors' knowledge.
"UBS kept $23.6 million that under
the terms of the deal should have gone ... for the benefit of its
investors," said George Canellos,co-director of the SEC's enforcement
division. "In doing so, UBS misrepresented the nature of the ...
collateral and rendered false the disclosures about how that collateral
UBS agreed to the settlement without admitting or denying SEC allegations that the bank had violated U.S. securities laws.
the terms of the settlement, the SEC said UBS will give up the $23.6
million in upfront payments, along with the $10.8 million fee the bank
received on the deal. The bank will also pay approximately $9.7 million
in prejudgment interest and a $5.7 million penalty.