A lawsuit that charges Bank of America’s (BAC) Merrill Lynch unit with misleading mortgage investors will be permitted to proceed, a federal judge in Manhattan has ruled.

The decision means that the company must now prepare to go to trial to defend itself against allegations by the Federal Housing Finance Agency of wrongdoing in its sale of securities backed by residential mortgages. The ruling was made by Denise Cote, a U.S. District Judge for the Southern District of New York.

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