Bank of America, KPMG Win Countrywide Settlement Approval

Countrywide Financial Corp., the mortgage lender acquired by Bank of America Corp., and KPMG LLP, its former auditor, won final approval for a $601.5 million minimum settlement with Countrywide investors suing for securities fraud.

U.S. District Judge Mariana Pfaelzer in Los Angeles today approved the settlement of the class action, which was revised in December to set aside $22.5 million for possible separate settlements after about two dozen institutional investors, including the California Public Employees’ Retirement System, opted out of the original $624 million agreement.

“There’s no reason to believe there was lack of fairness,” Pfaelzer said at the hearing. “I recognize how vigorously contested every issue in this litigation has been.”

The judge also approved $46.5 million plus interest to be paid from the settlement in fees for the plaintiffs’ lawyers and $8.1 million plus interest for their expenses.

The New York State Common Retirement Fund and five New York City pension funds are the lead plaintiffs in the case. They claimed former Countrywide Chief Executive Officer Angelo Mozilo and other executives hid from them that the company was fueling its growth by letting underwriting standards deteriorate.

Joel Bernstein, a lawyer for the New York funds, said at the hearing that, according to the plaintiffs’ experts, the most they could have recovered if the case had gone to trial would have been $2.8 billion.

‘No Way to Tell’

“There’s no way to tell what a jury could award in damages,” Bernstein said. “The jury verdict could have been less than the settlement.”

At least three of the investors that opted out of the settlement, a group of Michigan public retirement funds that claims $65 million in losses, a group of Oregon funds with $14 million in alleged losses, and a Fresno, California, retirement fund, have filed new complaints.

Oregon officials said in a Jan. 26 press release that the class-action settlement would have provided the state’s pension and workers’ compensation funds with only $500,000 for their losses.

Bank of America acquired Calabasas, California-based Countrywide, which was the biggest U.S. home lender, in July of 2008. Brian Pastuszenski, a lawyer for Bank of America, said at the hearing that the settlement doesn’t imply an admission by the bank that any laws were violated. They entered into a settlement to resolve the matter without further expenses and distractions, he said.

Preliminary Approval

Pfaelzer gave preliminary approval to the $624 million settlement in August. The lead plaintiffs subsequently asked the judge to approve a revised settlement that set aside $22.5 million for settlements with the funds that opted out. Pfaelzer tentatively approved the modified settlement last month.

Lawyers for the plaintiffs said in a Feb. 4 request for final approval that “certain” class members will also get a share of $48.15 million in additional cash from the Securities and Exchange Commission’s settlement with Mozilo and two other former Countrywide executives.

Mozilo, 72, agreed in October to pay a $22.5 million penalty and $45 million in disgorgement to settle the SEC’s claims that he misled investors. Bank of America said at the time it would provide the money for the disgorgement Mozilo and former Chief Operating Officer David Sambol had to pay.

Mozilo Suit

The SEC sued Mozilo, Sambol and former Chief Financial Officer Eric Sieracki in June 2009, saying they publicly reassured investors about the quality of Countrywide’s loans while knowing since at least the beginning of 2005 that the lender was originating an increasing number of risky subprime loans.

The U.S. Justice Department closed its investigation of possible criminal wrongdoing by Mozilo without bringing charges, a person familiar with the investigation said Feb. 19.

The $601.5 million securities class action settlement is the 14th largest since the enactment of the Private Securities Litigation Reform Act of 1995, lawyers for the New York funds said in the Feb. 4 filing.

The case is In re Countrywide Financial Corp. Securities Litigation, 07-05295, U.S. District Court, Central District of California Los Angeles).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

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

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