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Bank of America, CalPERS settle suit over Countrywide

California's public pension fund is one of 16 investors that accused the mortgage lender of billions in stock losses from failing to disclose risky loans.

November 23, 2011|By E. Scott Reckard, Los Angeles Times

California's giant public pension fund and 15 other large investors settled lawsuits that accused former mortgage giant Countrywide Financial Corp. of costing them billions of dollars in stock losses by failing to disclose the severity of the risks posed by the easy-money loans the Calabasas lender handed out during the housing boom.

A filing Monday in U.S. District Court in Los Angeles disclosed the confidential settlement. The filing did not reveal how much Bank of America Corp., which acquired Countrywide in 2008 and was also a defendant in the case, would pay to the California Public Employees' Retirement System and the other plaintiffs.

Bank of America's spokeswoman for legal affairs, Shirley Norton, declined to comment. An attorney for CalPERS and the other 15 investors didn't return a call seeking comment Tuesday, and CalPERS officials declined to describe the settlement.

The 16 big investors, mostly pension and mutual funds, were among 33 plaintiffs who opted not to participate in a $624-million settlement of class-action litigation that U.S. District Judge Mariana R. Pfaelzer approved in February.

The opt-outs believed that the proposed settlement was "shockingly cheap," Columbia University securities law expert John C. Coffee said at the time, citing a discussion with one of the lawyers representing those institutions.

An additional 17 institutional investors who decided against participating in the February settlement still have claims pending in the case.

This week's settlement, if approved by Pfaelzer, would end the 16 plaintiffs' claims against Countrywide, Bank of America and former Countrywide executives Angelo R. Mozilo, David Sambol and Eric P. Sieracki.

Accounting firm KPMG, which had audited Countrywide's books, is also a defendant in the case but did not settle with CalPERS and the other funds. It was a participant in the $624-million settlement finalized in February.

Bank of America, based in Charlotte, N.C., has struggled to put Countrywide's woes behind it since it shelled out $2.5 billion in stock for what was once the country's largest mortgage lender.

After running up more than $30 billion in losses on its investment, Bank of America still has undetermined liabilities outstanding for claims against soured Countrywide loans and the mortgage securities that were backed by them.

The Countrywide troubles have caused regulators to pressure Bank of America to increase its capital cushion against losses, and investors have punished the bank's stock, which has declined 59% this year. Bank of America shares closed Tuesday down 12 cents, or 2.2%, at $5.37.

scott.reckard@latimes.com

Times staff writer Marc Lifsher in Sacramento contributed to this report

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