SEC lawsuit against Bank of America should proceed, judge says

A federal judge in Charlotte recommended Monday allowing a U.S. Securities and Exchange Commission lawsuit against Bank of America over prime mortgages to proceed.

Last year, in similar lawsuits, the Justice Department and the Securities and Exchange Commission filed civil complaints against the Charlotte-based bank, accusing it of misleading investors who thought securities were backed by prime mortgage loans – those with a higher credit quality – when they were actually much riskier.

Last week, the magistrate judge, David Cayer, recommended dismissal of the Justice Department's lawsuit. The Justice Department said five investors, including Wachovia Bank, bought roughly $850 million worth of the securities from Bank of America in early 2008. Federal officials claim that, as of June, at least 23 percent of the 1,191 securitized mortgages had defaulted or were delinquent.

Cayer's recommendation last week was viewed as a potential setback for government efforts to go after fraud in the sale of mortgage-backed securities.

A magistrate judge can be assigned to make a recommendation on a lawsuit for the judge who is officially presiding over the case. U.S. District Judge Max Cogburn in Charlotte will ultimately decide whether to follow Cayer's recommendations.

"We’re reviewing the magistrate judge's recommendation carefully," Bank of America spokesman Lawrence Grayson said in a statement Monday afternoon.