Banks, investors and regulators are probably going to spend at least the next decade suing each other over the losses from The Bubble That Broke The World. Merrill Lynch underwrote a preferred stock offering for AIG? Sue ’em. Barclays put client money into locked-up accounts with AIG? Sue ’em. And, now, Bank of Countrywide America Merrill Lynch, which is already suing Lehman Brothers, is suing the folks who put together those two highly levered Bear Stearns funds that exploded in June 2007.
Bank of America Corp. filed a lawsuit against the asset-management unit of Bear Stearns Cos. and former fund managers Ralph Cioffi and Matthew Tannin, alleging they misled the bank about the financial health of two funds that collapsed last year, costing investors more than $1 billion.
Filed in U.S. District Court in Manhattan, the suit claims the Bear unit and its managers concealed from Bank of America that the funds were suffering substantial withdrawal requests from investors and were in imminent danger of collapse in the spring of 2007. The lawsuit alleges breach of contract and fraud.
Bank of America, based in Charlotte, N.C., structured and marketed a $4 billion securitization in May 2007 of mortgage-backed assets primarily owned by the two Bear-managed funds, according to the lawsuit.
“As a direct and foreseeable consequence of defendants’ misconduct, the bank sustained significant losses,” the suit alleges.
Also named as a defendant is former Bear portfolio manager Raymond McGarrigal, who now works at J.P. Morgan Chase & Co. Lawyers for Messrs. Cioffi and McGarrigal and a spokesman for Mr. Tannin declined to comment. A J.P. Morgan spokesman declined to comment, citing a policy not to comment on pending litigation.