AIG Sues Bank of America

Posted August 8th, 2011 at 6:05 pm (UTC-5)
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Insurance conglomerate AIG has sued Bank of America for more than $10 billion, saying the bank cheated it by selling residential mortgage-backed securities that were overvalued.

The formerly debt-ridden insurer filed suit in New York Monday, accusing the bank of “massive” fraud in its handling of the mortgage-backed securities that triggered the 2008 financial crisis.

AIG alleges that Bank of America, along with its Merrill Lynch and Countrywide Financial units, misrepresented the quality of the securities, including more than $28 billion purchased by the insurer.

Bank of America's stock plunged after the lawsuit was announced. A bank spokesman, Lawrence Grayson, denied the allegations, saying AIG was big enough and sophisticated enough to know the risks.

The lawsuit comes two months after Bank of America agreed to pay $8.5 billion to other investors for losses on mortgage-backed securities.

Back in 2008, AIG received $182 billion in government bailout money to avoid bankruptcy during the global recession. This past January, AIG reached an agreement in which all of the money may be paid back over the next two years.

AIG's rescue was the largest of any company that accepted U.S. aid. But the transactions with the company were derided by many critics in the U.S. who voiced the opinion that the company's mismanagement of its operations should not be rewarded with government assistance.