Countrywide Accused in Lawsuit of ‘Massive Fraud’

Bank of America Inc.’s Countrywide Financial unit, acquired by the bank in 2008, was accused of “massive fraud” in a lawsuit by investors who claim they were misled about mortgage-backed securities.

TIAA-CREF Life Insurance Co., New York Life Insurance Co. and Dexia Holdings Inc. are among a dozen institutional investors who filed the complaint yesterday in New York state Supreme Court.

The investors claim they bought hundreds of millions of dollars of Countrywide mortgage-backed securities from 2005 to 2007 because they wanted conservative, low-risk investments. They said they relied on term sheets, prospectuses and other materials provided by the firm that were recklessly or knowingly false.

“Countrywide was an enterprise driven by only one purpose -- to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the complaint.

The suit follows other fraud actions against Countrywide related to alleged misstatements to investors regarding the company’s mortgage-loan underwriting standards.

Angelo Mozilo

The complaint names more than 20 defendants, including Countrywide Home Loans Inc., Bank of America, Countrywide co- founder and former Chief Executive Officer Angelo Mozilo and other former executives.

“We will review the suit, but on first glance this sounds like a large, sophisticated investor who now wants to blame someone for the fact that the declining economy caused its investment to lose value,” Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, said in an e- mail.

“The lawsuit against Mr. Mozilo has no basis in law or fact,” said David Siegel, an attorney for Mozilo, in an e- mailed statement. “We expect to prevail against these plaintiffs as we have against other disgruntled, sophisticated MBS investors.”

In October, Mozilo agreed to pay a record $67.5 million to settle U.S. Securities and Exchange Commission allegations that he misled investors.

Former Chief Financial Officer Eric Sieracki and former Chief Operating Officer David Sambol also reached settlements with the SEC. None of the men admitted wrongdoing.

The SEC sued the three in June 2009, saying they publicly reassured investors about the quality of Countrywide’s loans while knowing that the mortgage lender was fueling its growth at least since the beginning of 2005 by letting its underwriting guidelines deteriorate and originating an increasing number of risky subprime loans.

The case is Dexia Holdings v. Countrywide Financial Corp., 650185/2011, New York state Supreme Court Manhattan).

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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