B of A Fires 5, Sues Them and Firms Over Huge Loss
Bank of America filed suit in federal court today against National Mortgage Equity Corp. and West-Pac Corp., two firms involved in faulty mortgage-backed securities loan packages that cost the bank $95 million.
Bank of America also dismissed five of its officers on grounds of “gross negligence” for their part in the handling of the loan pools. Another officer was demoted and reassigned to another job.
The six employees, the Chicago law firm of Lord, Bissell & Brook and Leslie W. Michael, one of the partners in the firm, were also named in the suit filed in U.S. District Court in Los Angeles.
The suit seeks recovery of the $95 million, $100 million in punitive damages plus triple damages under federal racketeering statutes.
The suit claims that NMEC, based in Palos Verdes, violated federal securities laws and defrauded investors through an elaborate scheme involving the sale of certificates representing pools of residential mortgages.
Bogus Appraisals
The bank alleges that West-Pac Corp. and is president, Kent Rogers, inflated the values of the properties with bogus appraisals and then used those overvaluations as the basis for loans that were packaged by NMEC for sale to investors, mainly a number of small banks and savings and loan companies on the East Coast.
The suit alleges that Lord, Bissell & Brook knowingly prepared false and misleading private placement documents used in marketing the mortgage pool certificates.
“The bank has been victimized in this affair, and we intend to go after every appropriate source of recovery,” said Samuel H. Armacost, president and chief executive officer for the bank.
No fraud charges were pressed against bank employees, but Bank of America attorney Winslow Christian said the officers are legally responsible for losses caused by their negligence.
Escrow Agent, Trustee
All of the employees named in the suit worked in the escrow and trust administration sections of the bank.
The bank served as escrow agent and trustee for investor institutions that bought the mortgages. Bank of America wrote off $95 million in the final quarter of 1984 to cover expected losses.
