A federal court judge in San Francisco has dismissed a shareholder suit accusing Bank of America and its top officers of negligence and mismanagement.
The shareholder derivative suit, filed in April by Cincinnati businessman Ned Schwartz, claimed that the bank, Chairman Leland Prussia, President Samuel H. Armacost and others failed to protect shareholder interests by not preventing an alleged mortgage securities fraud that cost the bank $95 million in last year's fourth quarter.
U.S. District Judge William W. Schwarzer last Friday granted a Bank of America motion for dismissal of the case, agreeing with a B of A board committee's finding that the bank's top officers acted in a timely and responsible manner once they learned of the alleged fraud.
In a derivative suit, a shareholder brings suit on behalf of a corporation against the firm, its officers or directors.
Paul Bennett, a San Francisco attorney representing Schwartz, said he was baffled by the court's ruling, because he said the bank, in effect, was allowed to drop a case against itself.
"That's what the trial court said they could do. It's our intention to appeal," Bennett said. The suit did not specify the amount of monetary damages being sought.
The case grew out of an elaborate scheme in which the bank agreed to serve as trustee and escrow agent for a mortgage securities investment plan that eventually went sour, leaving the bank with a tarnished reputation and the $95-million loss.
After the Schwartz suit was filed, the bank appointed a committee of non-management board members to investigate the case. The panel concluded that the case had no merit, a bank spokesman said.
Faces Other Suits
"Bank management acted in a timely and responsible manner once it learned of the problems with the (mortgage) certificates," said George W. Coombe Jr., the bank's general counsel. "Dismissal of the Schwartz suit eliminates a needless distraction to our recovery efforts and also confirms our board of directors' independent oversight of Bank of America's operations."
Although the bank faces other suits in connection with its recent losses and lending policies, the Schwartz suit was the only such action filed challenging the bank's handling of the mortgage securities case. In March, the bank fired five mid-level employees and filed a federal fraud and racketeering action against three firms that it claimed cheated the bank.
The bank is seeking to recover the lost $95 million from the employees, the firms and two insurance companies.