AIG holding BofA $8.5 billion settlement 'hostage,' investors say

Tue Feb 18, 2014 6:44pm EST
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By Karen Freifeld

NEW YORK (Reuters) - American International Group (AIG.N: Quote) is holding "hostage" an $8.5 billion deal to compensate investors who bought Bank of America Corp (BAC.N: Quote) mortgage securities, supporters of the deal said in court filings ahead of a hearing on Wednesday.

The supporters urged the judge overseeing the deal to reject AIG's efforts to delay its approval, according to documents submitted to the court late on Friday.

Bank of America agreed to the settlement in June 2011 to resolve claims by investors who had bought $174 billion of mortgage-backed securities issued by Countrywide Financial before the U.S. housing crisis. The investors said Countrywide, acquired by Bank of America in 2008, misrepresented the quality of the underlying home mortgages, which went sour in the crisis.

AIG, one of the investors in the mortgage securities, objected to the deal, saying there was no evidence it provided adequate compensation for losses.

Justice Barbara Kapnick in New York state court approved the settlement on January 31, but four days later AIG asked a new judge overseeing the case to delay the decision, saying Kapnick had left issues unresolved.

The new judge, Justice Saliann Scarpulla, has called a hearing Wednesday to hear arguments on AIG's request.

"The court should not permit AIG to nullify the judgment and hold the entire settlement hostage indefinitely," supporters of the deal said in their court filing. Kapnick overruled AIG on the unresolved issues, they said.

AIG is seeking to delay the settlement as leverage against Bank of America in another case, the supporters said. In that case, AIG sued Bank of America over $10 billion of securities fraud claims in August 2011, the same day it intervened to object to the $8.5 billion settlement.   Continued...

A man exits the AIG headquarters offices in New York's financial district, January 9, 2013. REUTERS/Brendan McDermid