Shareholder Files Suit Against B of A Officers
A Cincinnati shareholder has filed suit against Bank of America’s top officers, claiming that they bear direct responsibility for the bank losing $95 million in an alleged mortgage securities fraud.
Chairman Leland Prussia and President Samuel Armacost, among others, are accused in the suit of gross negligence and mismanagement. The suit also claims that Senior Vice President Robert H. Sherrett was given a generous severance payment in return for his silence on the mortgage deal.
The case grows out of an elaborate scheme in which Bank of America agreed to serve as trustee and escrow agent for a mortgage securities investment plan that eventually went sour, leaving the bank with a tarnished reputation and $95 million in losses last year.
In March, the bank fired five mid-level employees and filed a federal fraud and racketeering action against three firms that it claimed cheated the bank. Sherrett and another senior manager retired early in the wake of the debacle.
The shareholder derivative suit was filed May 17 in federal court in San Francisco by Cincinnati businessman Ned Schwartz. It alleges that the five fired employees were made scapegoats to protect the top officers and directors.
“In an attempt to shift the blame for their own breaches of fiduciary duty and acts of negligence, the individual defendants formulated a plan to shift all blame for the acts alleged herein to Bank of America employees below Sherrett in rank,” the suit said.
Sherrett, the suit said, was given “a substantial economic reward” for quietly resigning. He could not be reached Friday for comment.
Also accused of negligence and covering up top management’s responsibility for the scandal were bank Vice Chairman James B. Wiesler and T. M. McDaniel, retired president of Southern California Edison and chairman of the audit committee of the board of BankAmerica Corp., the bank’s parent.
The bank said its board has formed a committee to investigate the allegations in the suit. It also named a San Francisco law firm as independent counsel to the board committee.
“Under the circumstances, it would not be appropriate for the corporation to comment on the merits of the suit at this time,” the bank said in a statement. “The corporation has already made a comprehensive disclosure concerning the NMEC affair and has nothing to add to that disclosure at this time.”
NMEC (National Mortgage Equity Corp.) is the Palos Verdes Estates firm that packaged the mortgages that later turned out to be faulty. It is one of the defendants in the bank’s fraud suit.
The shareholder suit also charged bank management with reckless lending practices that led to $60 million in losses in Paraguay and complained that the bank’s poor reputation caused federal regulators to deny its application to open 13 limited-service banks outside of California.