Walnut Place, which was challenging Bank of America Corp. (BAC)’s proposed $8.5 billion mortgage-bond settlement with investors, withdrew from litigation over the deal.

Walnut Place entities that intervened in the case sought court permission to withdraw today without giving a reason, in papers filed in New York State Supreme Court. Justice Barbara Kapnick approved an order permitting the withdrawal.

The move is a boost for Charlotte, North Carolina-based Bank of America, which reached the settlement last year to resolve claims over Countrywide Financial mortgage bonds. The accord is before Kapnick for approval.

Walnut Place is among investors including American International Group Inc. (AIG) that intervened seeking more information about the agreement. New York Attorney General Eric Schneiderman and Delaware Attorney Beau Biden are also participating in the case, with Schneiderman’s office calling the settlement “unfair” to investors.

Walnut Place said in court papers that it had “serious concerns” about the adequacy of the settlement and that Bank of America was paying $8.5 billion to resolve claims “worth many times that amount.”

Walnut Place is a pseudonym used by hedge fund Baupost Group LLC, Theodore Mirvis, a Bank of America attorney, said at a hearing in New York Supreme Court, according to a transcript.

Earlier Suit

In a separate case last year, Walnut Place sued Bank of America, seeking to force the lender to repurchase loans backing more than $1 billion in mortgage bonds. Kapnick dismissed the complaint in March and an appeals court upheld the dismissal last month.

Elaine Mann, a spokeswoman for Boston-based Baupost, and Owen Cyrulnik, an attorney for Walnut Place, declined to comment. A Bank of America spokesman, Lawrence Grayson, also declined to comment.

The case is In the matter of the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court, New York County (Manhattan).

With assistance from Chris Dolmetsch in New York. Editors: Andrew Dunn, Stephen Farr

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.