Judge says U.S. fraud case vs. Bank of America should be tossed
By Karen Freifeld and Jonathan Stempel
(Reuters) - A federal judge has recommended dismissal of a U.S. government lawsuit accusing Bank of America Corp of defrauding investors into buying about $855 million of mortgage securities that soured during the global financial crisis.
If it stands, Thursday's ruling by U.S. Magistrate Judge David Cayer in Charlotte, North Carolina could mark a serious setback for the U.S. Department of Justice in its effort to fight fraud in the sale of mortgage securities.
Cayer said the government fell short of demonstrating that any false statements the bank may have made were material, or that the governing law covered the securities sales.
Less than two hours later, the Justice Department filed court papers saying it plans to object to Cayer's findings.
The lawsuit, which sought civil penalties, was a product of President Obama's Residential Mortgage-Backed Securities Working Group, which includes the Justice Department and other federal and state regulators.
It is one of several in which the government has relied on a law adopted after the 1980s savings and loan scandals, the Financial Institutions Reform, Recovery and Enforcement Act, to punish alleged misconduct causing the financial crisis.
That law has a 10-year statute of limitations, double the usual length in securities fraud cases, which the government took advantage of when it sued Bank of America last August over alleged misconduct dating from early 2008.
Bank of America was accused of misleading Wachovia Corp, now owned by Wells Fargo & Co, and the Federal Home Loan Bank of San Francisco about risks in the $855 million offering, from which they bought about 98 percent of the securities. Continued...