Israeli bank sues Bank of America over 'fraudulent' RMBS
GLOBAL - Bank Hapoalim is suing Bank of America for damages over alleged "material misrepresentations" made when it acquired $721m (€553.5m) in residential mortgage-backed securities (RMBS).
According to papers filed in a New York court, Bank of America and several of its subsidiaries, including Countrywide Financial and Merrill Lynch, allegedly committed or abetted fraud in the sale of RMBS Hapoalim subsequently sold at a loss.
The suit questions the underwriting standards used in the mortgage loans bundled into the RMBS sold to Bank Hapoalim ('the workers' bank').
Among the charges is that Bank of America lied about the portfolios' loan-to-value ratios, vacancy rates and credit ratings.
The case brought against the US bank includes charges of common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, and multiple contract claims.
The papers say: "Each of the defendants knew, or at a minimum was negligent in not knowing, that its representations and omissions were false and/or misleading at the time they were made."
Even if they were unaware of "material misrepresentation and omissions", according to Israel's second-largest bank, the original sale contract would be void as a result.
Bank of America is already facing suits from Belgian bank Dexia and a regional German bank, Baden-Wurttemberg Landesbank.
Dexia adds questionable appraisal valuations to accusations of poor underwriting standards in its claim for damages.
A New York State Supreme Court judge has already dismissed a $1.1bn lawsuit brought against Bank of America by a consortium of plaintiffs on similar grounds - a development that may not bode well for other would-be plaintiffs.
Yet a federal judge earlier this month gave permission for a class action brought against trustee BNY Mellon by four pension schemes last August to proceed as a class action.
The pension funds, which include the Chicago police scheme, are seeking $3bn in damages for losses incurred as a result of allegedly mis-sold RMBS.
Moreover, the New York State attorney general last week opposed a proposed $8.5bn settlement that would settle RMBS-related claims against Bank of America as "unfair and inadequate".