Bank of America Beats Investor Class Action over AIG Suit
American International Group Inc.'s multibillion-dollar lawsuit against Bank of America is alive and kicking, but on Monday BofA's lawyers finally knocked out a follow-on securities class action brought by BofA investors who claimed AIG's mortgage-backed securities claims against the bank caught them by surprise.
Siding with defense lawyers at Munger, Tolles & Olson and Winston & Strawn, U.S. District Judge John Koeltl in Manhattan dismissed the proposed class action in a 50-page ruling. The plaintiffs alleged that BofA made misleading statements in 2011 about the size and imminence of the AIG suit. But Koetl rejected the idea that shareholders were conned, writing that BofA's disclosures were adequate and that investors had early access to information about AIG's potential claims.
In a February 2011 annual report to shareholders, Bank of America explained that the bank was facing a wide range of MBS–related litigation but didn't specifically describe the nature and scope of AIG's potential claims. A month earlier, BofA had entered into a tolling agreement with AIG in hopes of reaching a prelitigation settlement with the insurance giant. Those mediation efforts failed, prompting AIG to sue BofA in August 2011, seeking a staggering $10 billion. BofA's stock price dropped 20 percent after news of the AIG suit spread, though that drop also coincided with a downgrade of the U.S. government's credit rating.
Plaintiffs lawyers quickly brought securities fraud claims on behalf of shareholders, and in June 2012 Koeltl appointed Hagens Berman Sobol & Shapiro lead counsel. The firm argued that once BofA made generalized warnings about its MBS exposure, it had a duty to disclose the imminence and size of the AIG lawsuit. Hagens Berman sought to represent a class of individuals and entities that bought BofA stock between February 2011 (when BofA released its annual report for 2010) and August 2011 (the date AIG filed suit). Several BofA directors and officers were named as codefendants.
In Monday's decision, Koeltl rejected Hagens Berman's disclosure theory. "The disclosure that the plaintiffs demand was not required because that information was not materially different from the information that was already publicly disclosed, because the defendants made no incomplete or inaccurate statements, and because no regulatory provision created an affirmative duty to disclose the allegedly omitted information," he wrote.
Plaintiffs counsel Steve Berman of Hagens Berman didn't immediately return a request for comment. We also didn't immediately hear back from George Garvey of Munger Tolles, who represents BofA.