Bank of America on Tuesday moved to dismiss a class action accusing it of failing to disclose that AIG had threatened to sue the bank for misrepresenting the quality of mortgage-back securities. The plaintiffs allege the fraud came to light when the AIG suit was filed, and Bank of America’s stock dropped. Bank of America’s motion argues that the overall risk of mortgage-backed securities litigation was well known, even if the specific AIG suit wasn’t disclosed:
Ever since the darkest days of the financial crisis, America’s biggest banks have been battered by a maelstrom of mortgage-backed securities (“MBS”) litigation. Before and during the Class Period, Bank of America Corporation (“BofA”) repeatedly warned that it was a target of significant lawsuits, some already filed and others expected but yet to come, from buyers of MBS, and that it continued to face increasing litigation risk related to its acquisitions of Countrywide and Merrill Lynch. BofA’s disclosures did not purport to identify which particular MBS investors might sue in the future, but left no doubt that more MBS claims, with potentially material consequences, were expected. . . . . Quite apart from BofA’s own explicit warnings to the market about its MBS claims exposure, the risk of claims involving hundreds of billions of dollars of MBS (far exceeding AIG’s holdings) was a favorite subject of media and analyst attention long before the Class Period, including reports concerning the potential magnitude of future lawsuits and some of the potential plaintiffs who were considering suing . . . .The New York Times and numerous other publications actually announced that [AIG was considering suing] on April 27, 2011. The stock market confirmed the immateriality of such news to BofA investors: BofA’s stock price rose modestly that day and the next. But even if the possibility of a suit by AIG in particular is assumed to be material, that possibility was known to the market since at least April 27; that BofA did not also announce it cannot have altered the total mix of information in the market’s possession.
The case is before Judge Koeltl. (H/T Reuters.)