In a legal battle that could be dubbed an all-star edition of our Worst Company In America tournament, AIG intends to sue Bank of America to get back $10 billion it lost investing in toxic mortgages made by BofA and two of its most infamous acquisitions, Countrywide and Merrill Lynch.
AIG, itself the 2009 WCIA champ, alleges that BofA and its acquired companies committed “massive fraud” when they packaged securities backed by defective mortgages while attempting to hide the toxicity of those loans. AIG says it lost more than $10 billion from the 350 mortgage-backed securities it bought from BofA for $28 billion.
From the Wall Street Journal:
The suit says Bank of America and its subsidiaries inflated home appraisals, allowed borrowers to misstate their income, ignored internal warnings about shoddy underwriting and selected the riskiest mortgages for securitization. The lender knowingly misrepresented the underwriting process in its descriptions of the mortgage-backed securities purchased by AIG, the suit alleges.
A rep for BofA says the bank “reject[s] AIG’s assertions and allegations” and that AIG was enough of an “informed, seasoned investor” to have seen the possible problems with the loans used to back the securities. BofA contends that AIG “recklessly chased high yields and profits throughout the mortgage and structured finance markets.”
Meanwhile, a rep for AIG spokesman accuses BofA of attempting “to blame others for its own misconduct… Investors, no matter how sophisticated, were entitled to rely on its numerous written representations about the securities it sold.”
Bank of America, the reigning WCIA runner-up (and recipient of our first Silver Poo trophy) is also a former Worst Company champ, having won in 2008 after acquiring Countrywide.