Bloomberg News

BofA Subpoenaed by Massachusetts Over Collateralized-Loans

February 14, 2012

(Update to add description of instruments in the fourth paragraph.)

Feb. 10 (Bloomberg) -- Bank of America Corp., the second- largest U.S. lender by assets, was told to turn over documents to Massachusetts’s top securities regulator related to the company’s involvement in collateralized loan obligations.

The inquiry focuses on two CLOs the Charlotte, North Carolina-based bank sold in 2007 that resulted in about $150 million in losses to investors, according to a statement today from the state’s secretary of the commonwealth, William Galvin.

“My securities division is investigating these CLOs to determine if the issuer was knowingly over-valuing the assets in the portfolio to get them off their books and onto investors,” Galvin said in the statement. “What did the issuers know at the time of the sales and were the assets being priced truthfully?”

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return. Bill Halldin, a Bank of America spokesman, said the company would cooperate fully with the probe and can’t comment further on regulatory inquiries.

Separately, Bank of America and four of the other biggest mortgage servicers agreed yesterday to a $25 billion settlement of state and federal probes into shoddy foreclosure practices. The deal allowed regulators to pursue the industry over claims regarding the packaging of loans into securities.

--Editors: Dan Kraut, Steve Dickson

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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