Bloomberg News

BofA’s $8.5 Billion Mortgage-Bond Deal Defended by Investors

September 21, 2011

(Updates with comments from hearing in eighth paragraph.)

Sept. 21 (Bloomberg) -- A lawyer for a group of investors that includes BlackRock Inc. defended their $8.5 billion mortgage-bond settlement with Bank of America Corp., saying a delay in getting court approval costs them money.

“They believe this is a very positive settlement,” Robert Madden, who represents 22 institutional investors, told a federal judge at a court hearing today in Manhattan.

U.S. District Judge William Pauley heard arguments about whether the settlement should be considered for approval in federal court or returned to state court in New York, where it was originally filed. Pauley didn’t rule on the issue.

Bank of New York Mellon Corp., the mortgage-bond trustee that sought approval for the settlement, says the case doesn’t belong in federal court and should be sent back to state court. The removal by an investor group -- Walnut Place LLC and related entities -- threatens to “significantly delay” the state-court proceeding, the bank said in a court filing.

“Delay hurts investors,” Madden said in an interview after the hearing. When Bank of New York filed the proceeding in state court, a judge set a November hearing to consider approval.

The proposed $8.5 billion agreement would settle claims from investors in Countrywide Financial Corp. mortgage bonds and is a move by Bank of America to resolve liabilities tied to its 2008 purchase of the home lender. The deal was reached with the institutional investor group and would apply to 530 mortgage- securitization trusts.

State Court Proceeding

Besides BlackRock, the institutional investor group that reached the deal includes Pacific Investment Management Co., Goldman Sachs Asset Management LP and Western Asset Management Co., according to court papers. Under the state court proceeding planned by Bank of New York, the settlement would bind investors outside the group.

“No one was doing anything until we started,” Madden told Pauley about how the group came together. “This was a litigation group that intended to bring litigation claims.”

Other investors have criticized the settlement. American International Group Inc. said in a court filing that Bank of America is “drastically underpaying.” Federal government agencies have also objected, seeking more information, and the case has drawn the attention of the Delaware and New York attorneys general, who have sought to intervene in the case.

Owen Cyrulnik, a lawyer for the Walnut Place entities, declined to comment after the hearing about why they want the case in federal court.

In court papers, they said Bank of New York filed the state court case, known as an Article 77 proceeding, to “cherry- pick” the benefits of class-action settlements and “cast aside the aspects that it finds inconvenient,” namely the right of investors to opt out of the deal.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-5988, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Stephen Farr, Peter Blumberg

To contact the reporter on this story: David McLaughlin in New York at

To contact the editor responsible for this story: John Pickering at

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