Bank of America Accused by DOJ of Greatly Misleading Investors Prior to Crash

Jacob Harper  |

While the economy has recovered significantly since the massive downturn of the late aughts, the financial institutions responsible haven’t been let of the hook yet. On Aug. 6, the Department of Justice accused Bank of America Corp. (BAC) of intentionally misrepresenting the toxicity of the mortgage-backed securities that had reaped the company untoward profits.

Internal emails – obtained by the DOJ – show that analysts at Bank of America Corp. were highly aware the assets were likely to become worthless while still pumping them to investors. One trader wrote that “none” of the $850 million in subprime-mortgage backed securities were suitable for inclusion in their prime-A portfolio, reserved for loans generally considered safe.

In the press release announcing the investigation, Attorney General Eric Holder claimed this latest investigation was a part of the Obama Administration’s unwavering focus on punishing those responsible for the financial crisis, which wiped some 11.7 trillion from the American economy. US Attorney Anne Thompson singled out Bank of America specifically saying that “Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors… now, Bank of America will have to face the consequences of its actions.”

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Concomitantly, the Securities and Exchange Commission charged BOA of committing mortgage securities fraud concerning the same assets. The SEC alleges that the financial giant “failed to tell investors that more than 70 percent of the mortgages backing the offering – called BOAMS 2008-A – originated through the bank’s “wholesale” channel of mortgage brokers unaffiliated with Bank of America entities and were even called “toxic waste” by their then-CEO.

The bank has already agreed to pay over $45 billion to various parties to settle disputes stemming from the 2008 financial crisis. Bank of America denied they knowingly bilked investors, saying sall losses experienced by investors can be attributed to the worldwide economic downturn, and cannot be pinned on the bank specifically.

The big banks have been under intense governmental scrutiny as of late. On Aug 1, Citigroup Inc (C) settled with investors for $590 million over charges they misled stockholders. Thge day before, JP Morgan &Chase CO. (JPM) settled for $410 million over energy price-fixing allegations.

Bank of America stock is down .75 percent to hit $14.53 a share.

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