Countrywide, KPMG May Pay $624 Million to Settle Fraud Suit

Countrywide Financial and KPMG LLP have agreed to pay $624 million to settle a lawsuit that accused the mortgage lender of securities fraud, New York Comptroller Thomas DiNapoli said.

The settlement, if approved by U.S. District Judge Mariana Pfaelzer in Los Angeles, would provide as much as $15 million to pensions covering state and New York City workers, fund representatives said today. The funds led the class-action lawsuit against the mortgage lender.

Countrywide exposed investors to “excessive, undisclosed risk” and “violated securities laws by making misstatements and omitting material facts about its policies and procedures” for lending, according to a statement from DiNapoli’s office. The lender is now part of Bank of America Corp.

The New York State Common Retirement Fund, with $129.4 billion in assets, may recover as much as $10 million, said Robert Whalen, a DiNapoli spokesman. Five separate city pension funds, which hold assets of $105 billion, stand to get about $5 million, said Kate Ahlers of the city Law Department.

Countrywide has agreed to pay $600 million and KPMG, an accounting firm, would pay $24 million, DiNapoli said. He is the sole trustee of the state’s pension fund.

Countrywide’s settlement was reported in Bank of America’s quarterly financial report filed with the Securities and Exchange Commission today, according to Shirley Norton, a bank spokeswoman. The Charlotte, North Carolina-based bank bought Calabasas, California-based Countrywide in 2008 for about $2.5 billion, Bloomberg data show.

Countrywide Denies Wrongdoing

Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws,” Norton said in a statement. Information “that plaintiffs contended was not disclosed to investors had in fact been disclosed in multiple ways, including through regular investor forums,” Norton said. She said the lender agreed to settle to avoid further costs.

Countrywide disclosed the “credit risk attributes of the loans it originated and later securitized,” Norton said. The lender attributed declines in the value of its securities to the “collapse of national home prices” and “the crisis in U.S. capital markets in 2007,” she said.

“The settlement concludes the securities class action,” said George Ledwith, a KPMG spokesman.

Judge Pfaelzer may hold a final hearing to approve the proposed settlement in September, according to DiNapoli’s office. The agreement would be the 13th-largest securities class-action settlement in the 15-year history of the Private Securities Litigation Act, DiNapoli’s office said.

Labaton Sucharow LLP, a New York City-based law firm, was the lead counsel for the pension funds. The firm probably would receive about $10 million to cover expenses and about 8 percent of the net settlement amount, Whalen said.

To contact the reporter on this story: Henry Goldman in New York at hgoldman@bloomberg.net.

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