The Federal Deposit Insurance Corp. urged a U.S. judge to reject a proposed $500 million class-action settlement between Bank of America Corp.’s Countrywide unit and investors in devalued mortgage-backed securities.
The FDIC, as receiver for 19 failed banks that owned the Countrywide securities, said in a filing Monday in federal court in Los Angeles that the proposed settlement sets aside only $41 million for the claims of 91 percent of the investors in the securities while the lawyers for the lead plaintiffs will receive $85 million.
The lead plaintiffs and their lawyers can only represent a “tiny minority” of the investors because of a series of rulings by U.S. District Judge Mariana Pfaelzer in 2011 in the federal securities class-action, in which plaintiffs claimed Countrywide Financial Corp. lied in the offering documents for the securities. The judge said only the claims for securities that were purchased by investors in the very first lawsuits could proceed under federal law.
“The court’s ruling on standing disarmed the named plaintiffs,” the FDIC said. “They could no longer use the threat of litigation to press for a better offer, and they then ceased to be able to fairly and adequately protect the interests of the class.”
The FDIC also said the $500 million amount is too small because it represents only about 0.11 percent of the $450.7 billion face value of the securities it covers.
