U.S. District Judge Max O. Cogburn Jr. was persuaded by Bank of America to reconsider his decision that an SEC lawsuit regarding the issuance of $850 million in mortgage-backed securities should proceed. The SEC claims that Bank of America failed to file documents with the SEC that it gave potential investors in the securities, which later dropped precipitously in value, hiding that the buyers received false information. Bank of America’s attorneys countered by arguing in federal court in Asheville, North Carolina that the SEC’s rules regarding such disclosures were unclear.
Bank of America is accused of violating securities laws by concealing what it knew about the tenuous future of mortgages that backed the securities. Essentially, the SEC believes that the bank misrepresented material facts about the underlying mortgages in order to make them seem less risky. The SEC’s claims concerned loan tapes, which were the preliminary documents about the mortgages that were provided to potential investors at the initial stages of the process. Bank of America argued that disclosure rules did not apply because the “reams and reams of papers” this case revolves around were provided to investors before they agreed to invest and that the SEC was wrong because the investors had not yet committed to buying the securities. The SEC countered by arguing that Bank of America was misinterpreting the rules and that they were required to provide all documents given to investors both before and after said investors decided to buy the securities.
At the hearing last week, Judge Cogburn was given the task of deciding whether the case should continue, as recommended by U.S. Magistrate Judge David S. Cayer, or should be dismissed. Cogburn did not state when he would issue a final decision.
This case, partnered with a similar case by the U.S. Justice Department regarding the same securities, are part of the U.S. government’s effort to punish companies for their part in what helped initiate the financial collapse.
If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.