Allstate has filed a securities fraud lawsuit against Bank of America (NYSE: BAC) and its subsidiary Countrywide Financial. The insurer claims that it purchased over $700 million in toxic mortgage-backed securities that quickly lost their value. Also targeted in the securities complaint are former Countrywide CEO Anthony Mozilo and other executives. Allstate is alleging negligent misrepresentation and securities violations.
The insurance company purchased its securities between March 2005 and June 2007. According to the federal lawsuit, as far back as 2003 Countrywide let go of its underwriting standards, concealed material facts from Allstate and other investors, and misrepresented key information about the underlying mortgage loans. The insurer contends that Countrywide was trying to boost its market share and sold fixed income securities backed by loans that were given to borrowers who were at risk of defaulting on payments. Because key information about the underlying loans was not made available, Allstate says the securities ended up appearing safer than they actually were. Allstate says that in 2008, it suffered $1.69 billion in losses due largely in part to investment losses.
It was just this October that bondholders BlackRock and Pimco and the Federal Reserve Bank of New York started pressing Band of America to buy back mortgages that its Countrywide unit had packaged into $47 billion of bonds. The bondholder group accused BofA, which acquired Countrywide in 2008, of failing to properly service the loans.
Meantime, BofA says it is looking at Allstate’s lawsuit, which it says for now appears to be a case of a “sophisticated investor” looking to blame someone for its investment losses and a poor economy.
Related Web Resources:
Countrywide Comes Between Allstate And BofA, Forbes, December 29, 2010
Allstate sues Bank of America over bad mortgage loans, Business Times, December 28, 2010
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