In an opinion yesterday, Judge Cote dismissed a complaint brought by VNB, a real estate trust, accusing Bank of America of fraud in connection with mortgage-backed securities. Judge Cote found it “problematic” that the complaint cut-and-pasted confidential witnesses’ allegations from another case brought by AIG against Bank of America, because the VNB’s counsel “obviously has not had direct contact” with those witnesses:
By drawing its factual allegations from the statements of confidential witnesses in AIG’s complaint, VNB is attempting to rely on the substance of those allegations without being held responsible for certifying that they are supported by some factual basis, or at least that the witnesses did in fact make such statements. Unlike AIG, VNB presumably does not even know who these witnesses are . . . . Allowing parties to rely on confidential witness statements drawn from another complaint also has the potential to incentivize collusion, and raises the possibility of complaints that are stocked with fabricated confidential witness statements placed in other complaints.
Judge Cote concluded that the statements from the AIG complaint were, in this case, “essentially conclusory assertions untethered to any factual support,” and dismissed the case in its entirety. Related: In July, we reported on Judge Rakoff’s observations about the “unintended consequences” of relying on confidential witnesses.