BofA lawyers sat on AIG mortgage suit for seven months

Bank of America lawyers knew seven months beforehand that American International Group was going to sue the bank over $10 billion in bad mortgages, but did not mention the threat of the lawsuit in its quarterly regulatory filing to the Securities and Exchange Commission, Reuters reported. Management also did not discuss it on conference calls about quarterly results and other pending legal claims. Some lawyers say that the SEC’s disclosure rules are not clear and BofA may have been justified in not revealing the lawsuit before it was filed. But others say that banks have an obligation to disclose legal threats that could have major consequences.

The questions over the lawsuit illustrate why investors remain concerned about BofA, Reuters reported.

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“Management surely has a credibility problem with investors,” said Jonathan Finger, whose Finger Interests Number One Ltd in Houston owns Bank of America shares. “They continue to under-address or under-disclose on the mortgage issue.”

Aug. 8, the day the lawsuit was filed, BofA shares fell more than 20 percent, sparking worries about the bank’s stability that an investment of $5 billion by Warren Buffett only partly eliminated. Buffett, meanwhile, defended his investment after a critical Wall Street Journal editorial, the New York Times reported. [Reuters] and [NYT]