Bank of America's Legal Quagmire Just Got a Lot Murkier

It's been a newsy week for big Wall Street banks, and most of the press has swirled around the various legal actions regarding investors' losses from toxic mortgage-backed securities.

Citigroup (NYSE: C  ) received judicial approval for a $590 million settlement reached with a group of investors who suffered losses tied to collateralized debt obligations, and a high-profile trial featuring a former Goldman Sachs (NYSE: GS  ) trader finished up in Manhattan. In that case, Fabrice Tourre was found liable on six of seven counts of civil fraud connected to his involvement in hawking toxic MBSes -- and hiding the facts about just how unstable they really were.

And now, as Bank of America's (NYSE: BAC  ) stock cozies up to the $15 per share mark, a filing with the Securities and Exchange Commission reveals some tidbits that threaten to send the stock reeling.

More lawsuits in the wings
Reuters reports that the bank's 10-Q form reveals that both the U.S. Department of Justice and the Securities and Exchange Commission are preparing to file civil charges against B of A regarding "one or two" MBSes that contained jumbo mortgages. The SEC has also alerted the bank that it is contemplating filing additional charges against the bank's Merrill Lynch division over some collateralized debt obligations the agency has been investigating. The bank states it is currently explaining to these entities why these charges are "not appropriate." 

Meanwhile, other legal proceedings against Bank of America are slowly meandering through the system. The hearing taking place in Manhattan that will decide whether the bank's $8.5 billion settlement with a group of institutional investors will stick has been put on hold until September, and the bank is using the break to turn its full attention to another lawsuit playing out in Boston. In that case, a group of homeowners alleging they were fraudulently rejected for loan modifications claim that bank employees actively blocked their efforts to refinance under the Home Affordable Modification Program.

According to Bloomberg, B of A has recently requested that the judge rebuff the plaintiffs' bid to attain class action status for their complaints, saying that the current case reflects desperation on the part of those borrowers, and that each case should be considered individually. This speech, delivered by the bank's counsel, echoes the July 12 filing wherein B of A attests that the homeowners are simply trying to succeed as a group where each has failed individually. 

The never-ending story
The news revealed in Bank of America's 10-Q filing highlights the fact that the bank's legal woes seem to be without end. Not only do these lawsuits take the focus off of the business of banking, but it requires the bank to keep shoveling wads of money into legal defense -- cash that could, conceivably, be paid out to its investors as dividends.

There is no doubt that things are bad for B of A, and are apt to get even worse. The fact that the bank felt it necessary to repeat its plea that the collection of homeowners in the HAMP case should not be allowed to pursue a class action lawsuit tells me that counsel may be worried about the outcome of that litigation. Desperation, indeed.

In addition, the hearing in Manhattan could wind up opening the door to billions more in settlement expenses for the big bank, and the costs associated with these new, pending charges are unknown. In the ongoing saga of Bank of America's legal liabilities, yet another new chapter unfolds.

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  • Report this Comment On August 03, 2013, at 3:11 PM, royblizzardiii wrote:

    Anyone who still banks at BoA is helping to perpetuate a criminal syndicate. It has long been known to those of us who have been studying this issue that the major crime families moved into the banking mortgage business long ago as there were few if any criminal penalties for massive theft of trillions of your dollars. Much easier that breaking a few legs over cement orders. If BoA's mouths are moving they are lying to cover their fraud. Read about some of the issues at http://royblizzard.hubpages.com/hub/Criminal-Issues-of-the-M...

  • Report this Comment On August 03, 2013, at 5:15 PM, knowwhatyouspeak wrote:

    Does anyone really know what the implications of these legal filings might be??

  • Report this Comment On August 04, 2013, at 8:54 AM, Rusty56 wrote:

    More foolish BS from a 20 something year old. The stock is not going to crash, period. would have done so on Friday.

  • Report this Comment On August 04, 2013, at 7:45 PM, PEStudent wrote:

    When I see people wailing over the potential legal problems, and then see that consensus eps estimates are for 18% per year for the next 5 years. I feel like it's time to "buy on the cannons" time.

    BAC has a DRIP that allows no-fee purchases, which makes small, automatic monthly purchases worthwhile. I'm considering it. If it takes a year or two to take off, I'll have dollar-cost-averaged a nice low-cost number of shares.

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