NEW YORK — A federal judge has ruled the massive $8.5 billion settlement between Bank of America Corp. and several important investors who lost billions on mortgage-backed securities will be heard in federal court.
The ruling goes against Bank of America and Bank of New York Mellon Corp., the trustee in the case, which had both wanted the settlement to remain in New York state court where they had initially filed it.
The settlement, reached in late June, needs a judge to rule whether or not the $8.5 billion is a fair and reasonable amount of money to settle claims over mortgages that originally totaled $424 billion. Investors with household names like BlackRock Inc. and the Federal Reserve Bank of New York had pushed Bank of America to the deal, using Bank of New York Mellon as their legal trustee, and also wanted the case to remain in state court.
But since the pact was announced, it has come under fire from other investors and some law enforcers. The group of bond holders that moved the settlement to federal court, known only as Walnut Place LLC, have been joined by dozens of other investors who may be impacted by the settlement in seeking a voice in the proceedings. The Federal Deposit Insurance Corp., banks like Goldman Sachs Group Inc. and the New York attorney general have all filed to be a party. New York, acting on behalf of pension funds for public workers, has also sued Bank of New York Mellon over its role in the settlement.
For Bank of America, the settlement was supposed to mark a watershed moment in its battle to put mortgage issues behind it. The questions and complaints by others have raised concerns what little certainty the bank had created with the deal may be washing away.
"We believe there are compelling reasons why the agreement should receive judicial approval in the court with appropriate jurisdiction," a Bank of America spokesman said.
A Bank of New York Mellon spokesman wasn't immediately available for comment.
Judge William H. Pauley concluded Wednesday that the agreement has federal interests because of the parties involved, rejecting the banks' legal claims. At a hearing last month on the matter, Pauley had peppered the lawyers for Bank of New York Mellon and the investors with questions that looked to determine how the settlement was reached and how some investors were part of the deal.
"The Bank of New York Mellon, as trustee for hundreds of trusts, seeks to dispose of billions of dollars in toxic mortgage claims through an arcane summary procedure," Pauley wrote in his ruling. "A controversy touching on these paramount federal interests should proceed in federal court."
