SEC charges Bank of America with defrauding investors in RMBS offering

250px-Bank_of_America.svgThe SEC charged Bank of America and two of its subsidiaries on Tuesday with defrauding investors through a residential mortgage-backed securities offering that failed to disclose key risks and misrepresented facts about the mortgages.

The SEC alleges that the bank failed to notify investors that more than 70 percent of BOAMS 2008-A—mortgages backing the offering—originated through a channel of mortgage brokers unaffiliated with the bank and its entities. BOAMS 2008-A was sold as a “prime” securitization appropriate for most investors.

BofA was allegedly aware that the loans, described by the former bank CEO as “toxic waste,” presented risks of severe delinquency, early default, underwriting defects and prepayment, which directly impact the returns to investors. The bank selectively disclosed the percentage of loans to a limited group of investors and never filed it publicly as required by federal law.

“In its own words, Bank of America ‘shifted the risk’ of loss from its own books to unsuspecting investors, and then ignored its responsibility to make a full and accurate disclosure to all investors equally,” George S. Canellos, the co-director of the SEC’s Division of Enforcement, said.  “This is one in a long line of RMBS-related enforcement actions brought by the SEC to hold entities accountable for wrongdoing connected to the financial crisis.”

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