American International Group Inc. and others have objected to this settlement, saying the settlement made to them is a fraction of the money they lost.

 June 07, 2013: Court proceedings have begun on an 8.5 billion settlement between Bank of America and investors in mortgage securities that turned bad during the financial crisis in 2008. Bank of America (BAC) had agreed to the proposed settlement in June 2011 to resolve the claims made by investors who held bonds issued by Countrywide Financial, which America bought in 2008.  Twenty two institutional investors, including BlackRock (BLK), Metlife (MET), and Allianz SE’s Pacific Investment Management Co had entered into the deal. But American International Group (AIG) and others objected saying the settlement offered to  them is a fraction of the money they lost. Matthew  Ingber, a lawyer for Bank of New York Mellon, the trustee overseeing the securities, made the case for the deal as a long awaiting proceeding for approval of the settlement got underway in a state court in New York.  Bank of New York Mellon, as the trustee, is asking a New York state court to approve the settlement and make it binding on all the investors.

Justice Barbara Kapnick of New York State Supreme Court will decide the case without a Jury. She has set aside the first two weeks of June to hear the case. If she rejects the settlement, the parties could face years of litigation. Kathy Patrick who will argue for the institutional investors said the objectors comprise only seven percent of certificate holders. She said there is huge support for the settlement.  However, Colorado Attorney Daniel Reilly, who represents AIG said “The proposed deal offers pennies to dollars”. Nearly 20 AIG entities and the home banks of Boston, Indianapolis and Chicago are among the 65 opponents of the settlement” he said. The losses to the trusts may exceed more than $ 100 billion, according to court documents. The opponents also claim that BNY Mellon placed its interests and that of Bank of America above certificate holders. They alleged that BNY Mellon gets trust business from the bank.  The case was filed by Bank of New York Mellon Corp. (BK), the trustee which manages 530 trusts that held the securities is asking the court to approve the settlement and make it binding on all the beneficiaries. “You may hear a lot from the objectors about what the trustee should have done, could have done or might have done,” Ingber arguing for the trustees told Justice Barbara Kapnick. “But, your honor, all those coulda, woulda, shoulda, are irrelevant if the pot of gold isn’t going to be there.”, “ Approval of this is a win to all investors” he said.

The Investor group which is supporting the deal includes Pacific Management Company, Goldman Sachs Asset Management, and Met Life Inc. The investor groups have termed their opponents as a “vocal minority”.

“Rejection of this landmark settlement would plunge thousands of innocent investors and hundreds of trusts into decades of potentially fruitless litigation that could well end in Countrywide’s bankruptcy and a resulting scramble among its creditors over assets which are less than $ 8.5 billion payment”, the investor group said.

Issac Gradman, a mortgage finance litigator in Santa Rosa said, “The settlement is the centerpiece of the strategy to resolving Countrywide’s mortgage liability”. He said “It’s imperative they get this approved or there’s going to be a lot more pain down the road”.

Justice Barbara Kapnick has set aside the first two weeks of June to hear the case. A ruling could take months after the trial is completed.