NEW YORK (Reuters) - Bank of America Corp (BAC.N) is urging a federal court to throw out an unusual lawsuit by its shareholders accusing it of concealing a $10 billion fraud case brought by American International Group Inc (AIG.N).
The bank argued in papers filed late Tuesday in Manhattan federal court that shareholders should have known the insurer might sue, based on published reports several months earlier.
Bank of America also contended that shareholders may not have been harmed by the insurer’s lawsuit.
AIG sued Bank of America on August 8, 2011, alleging misrepresentations about the quality of more than $28 billion of mortgage-backed securities it bought from the bank and its Countrywide and Merrill Lynch units. Bank of America shares fell 20.3 percent on the day the case was filed.
Shareholders led by Camcorp Interests Ltd, a Houston-based investment firm, sued the bank last September, arguing that Chief Executive Brian Moynihan and other officials had known in February 2011 of AIG’s potential claims and should have revealed this “extremely large and material” threat at the time.
In its Tuesday court filing, the second-largest U.S. bank said reports published in the New York Times and elsewhere noted the possibility of AIG litigation as early as April 2011.
The Charlotte, North Carolina-based bank also said it had long disclosed its exposure to significant mortgage securities litigation, “a favorite subject” of media and analysts.
“The extensiveness of the litigation risk disclosures that B of A did make, the lack of any obvious duty to disclose more, and the fact that it was already widely reported that AIG was considering suing B of A — all undermine any inference of recklessness,” the bank said in the filing.
Bank of America also noted that the broader stock market, not just its own shares, plunged on the day AIG filed its lawsuit.
That day was the first trading session after Standard & Poor’s took away the United States’ triple-A credit rating. Major U.S. stock indexes fell 5.5 percent to 6.9 percent, and while Bank of America was the S&P 500’s biggest percentage loser, prices of many rivals fell by double-digit percentages.
The complaint “does not so much as mention” the U.S. credit rating downgrade, a “cataclysmic marketwide event” that could just as easily have been responsible for the shareholder losses, the bank said in the filing.
Steve Berman, a partner at Hagens Berman Sobol Shapiro representing the plaintiffs, said on Wednesday: “We are confident we will defeat the bank’s motion to dismiss.”
AIG’s $10 billion lawsuit is still pending. In its most recent quarterly report, Bank of America estimated that it might be forced to pay out as much as $4.1 billion more for litigation and regulatory matters than the unspecified sum it has set aside.
The case is In re: Bank of America AIG Disclosure Securities Litigation, U.S. District Court, Southern District of New York, No. 11-06678.
Editing by Martha Graybow and Matthew Lewis