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ASHEVILLE N.C. (Reuters) - A federal judge on Wednesday said he would consider dismissing a U.S. Department of Justice lawsuit accusing Bank of America Corp (BAC.N) of civil fraud in the sale of mortgage securities that soured during the global financial crisis.
While not issuing a formal ruling, U.S. District Judge Max Cogburn said he had concerns and indicated at a hearing in Asheville, North Carolina that he might adopt the recommendation of a federal magistrate judge for a dismissal of the fraud claims tied to the $850 million (506.29 million pounds)sale of securities.
"DOJ may not have the evidence to try this as a fraud case," Cogburn said.
Cogburn's skepticism comes at a crucial time, as the second-largest U.S. bank negotiates with the Justice Department and other federal and state authorities to potentially pay more than $12 billion to resolve a range of probes into its sale of mortgage securities that quickly imploded.
Cogburn also told assistant U.S. Attorney Daniel Ryan that the government needed to provide more substantial information to support its case.
While the case from the U.S. Attorney's office in Charlotte is not a major factor in Bank of America's negotiations, it has added further pressure on the bank as it seeks to put a range of mortgage-related liabilities stemming from the financial crisis behind it.
In announcing the lawsuit, Attorney General Eric Holder had said it reflected the Justice Department's ongoing efforts to "hold accountable those who engage in fraudulent or irresponsible conduct.”
In March, U.S. Magistrate Judge David Cayer recommended dismissal of the lawsuit, saying that the case did not fit the statutes the government relied on in bringing it.
Civil prosecutors in Charlotte had charged Bank of America under a civil fraud law, FIRREA, which requires it to reference criminal statutes that it believes are implicated.
The lawsuit references two criminal laws, including one that bars false statements to government agencies and is often used to prosecute people accused of covering up a crime.
It also referred to another law which Cayer said only applied to traditional customer-related bank activities such as loans, and not securities.
On Wednesday, Cogburn said he would consider allowing the Justice Department to amend its complaint.
Cogburn also considered a related lawsuit the U.S. Securities and Exchange Commission brought against Bank of America, which Cayer had recommended should proceed.
At the hearing Cogburn said he had not yet made a final decision but was inclined to uphold Cayer's recommendation on the SEC lawsuit. He also said the SEC case could help make investors whole even if the Justice Department's case was ultimately dismissed.
Writing by Aruna Viswanatha in Washington; Editing by Caren Bohan and Lisa Shumaker