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AIG Targets ‘Shroud of Secrecy’ in BofA Mortgage-Bond Deal

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Nov. 3 (Bloomberg) -- American International Group Inc. and other investors should be able to penetrate the “shroud of secrecy” over negotiations that led up to Bank of America Corp.’s $8.5 billion mortgage-bond settlement, a lawyer for the insurance company said.

The institutions that negotiated the settlement -- Bank of America, Bank of New York Mellon Corp. and a group of institutional investors -- want to keep their communications confidential, said Dan Reilly, a lawyer for AIG, at a court hearing today.

“We have many questions, and we need more information,” Reilly told U.S. District Judge William Pauley in Manhattan. Investors in the mortgage bonds covered by the deal “should know whatever it is they’re trying to keep secret,” he said.

Bank of America’s proposed $8.5 billion settlement would resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008. BNY Mellon, the trustee for the mortgage-bond trusts covered by the agreement, has sought court approval of the agreement.

Investor Criticism

The settlement has drawn criticism from some investors, including AIG. Others have filed objections seeking more information about the deal. New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have also sought to intervene in the case.

Biden’s office urged Pauley in a filing dated Oct. 26 to approve the intervention request, saying it is seeking to protect the interests of investors and borrowers affected by the settlement. The filing, provided by Biden’s office, couldn’t be confirmed in court records.

Pauley didn’t rule at today’s hearing on the intervention by the states. The judge said the exchange of evidence could proceed as Bank of New York seeks to appeal his decision that the settlement should be reviewed in federal court and not state court.

Kevin Heine, a BNY Mellon spokesman, and Lawrence Grayson, a Bank of America spokesman, declined to comment on the remarks by AIG’s lawyer. Kathy Patrick, a lawyer for the institutional investor group, which includes BlackRock Inc. and Pacific Investment Management Co., didn’t immediately respond to an e-mail seeking comment.

The institutional investor group defended the settlement in a court filing this week, saying rejection of the deal would be “devastating” for investors. The settlement protects against the risks of a Countrywide bankruptcy and requires mortgage-servicing changes by Bank of America that may spare investors billions of dollars in losses, lawyers for the group said.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).

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

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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