MANHATTAN (CN) - Bank of America, but not its executives, must face a class action claiming it concealed its use of an electronic registry system in the mortgage fraud and robosigning scandals, a federal judge ruled.
The Pennsylvania Public School Employees' Retirement System sued Bank of America and its executives in September 2011, claiming they hid their reliance on the Mortgage Electronic Registration Systems (MERS), which has been criticized for allegedly helping banks avoid fees or publicly recording mortgage transfers.
New York Attorney General Schneiderman claimed in a February lawsuitthat MERS deprived homeowners and the general public of the ability to track the purchase and sale of properties through the public records system.
Shielded from public scrutiny, unaccountable MERS officials rubber-stamped thousands of invalid foreclosures, in what came to be known as the robosigning scandal, Schneiderman said.
Bank of America claimed that it disclosed its ties to MERS in documents that its subsidiaries filed with the SEC.
But in his ruling Wednesday, U.S. District Judge William H. Pauley III wrote that the parent company made no such efforts toward disclosure.
"The SEC filings that the BoA defendants cite to show that BoA disclosed its reliance on MERS are insufficient," Pauley wrote. "Indeed, BoA did not even file those documents. One was filed by a Countrywide subsidiary prior to BoA's acquisition of Countrywide, and the other was issued by a BoA subsidiary. And both prospectuses were intended for private investors, rather than BoA shareholders. The BoA defendants offer no convincing explanation why BoA shareholders should have been reasonably aware of those prospectuses."
But Pauley dismissed the claims against the executives, saying the plaintiffs did not claim they "were even aware of the practice."
"Plaintiff's allegation that the executive defendants tolerated robosigning is conclusory because plaintiff does not plead that any of the executive defendants were even aware of the practice," Pauley wrote in his Memorandum and Order.
Pauley found that that the pension fund hung its claims against the executives on allegations of confidential witnesses, including a foreclosure specialist. But the judge found no indication that the specialist had "any contact with" the executives.
Pauley dismissed from the complaint without prejudice Bank of America's former CEO Ken Lewis, current CEO Brian T. Moynihan, former president of consumer banking Joseph Lee Price, II, Chief Accounting Officer Neil Cotty, and vice chairman Charles H. Noski.
The pension fund must file and serve an amended complaint by July 31 if it wants to retry those claims.