(Reuters) ? Bank of America Corp agreed to pay $315 million to settle claims by investors who said they were misled about mortgage securities offerings by its Merrill Lynch unit.
The proposed class-action accord is one of the largest settlements of investor claims against banks over seemingly safe mortgage-backed securities that later proved toxic as credit and housing conditions worsened.
It is also the latest step in Bank of America's efforts to address its legal liabilities stemming from its purchases of Merrill in January 2009 and the mortgage lender Countrywide Financial Corp six months earlier.
Bank of America is based in Charlotte, North Carolina, and is the second-largest U.S. bank by assets.
A Bank of America spokesman did not immediately respond to requests for comment on the settlement. Lawyers for the investors were also not immediately available.
Reuters in mid-November reported the size of the settlement, citing an unnamed source.
The settlement was disclosed publicly late Monday night in court papers filed in U.S. District Court in Manhattan. The settlement requires approval by Judge Jed Rakoff.
The pact resolves claims by investors that Merrill misled them about the risks of $16.5 billion of mortgage-backed securities in 18 offerings made between 2006 and 2007, before Bank of America bought the company. Bank of America did not admit wrongdoing in agreeing to settle.
Investors led by the Public Employees' Retirement System of Mississippi pension fund claimed that offering documents misled them about the quality of the loans backing their investments, and that the loans complied with underwriting guidelines.
They also said the investments did not deserve the investment-grade ratings they once had, being backed by risky loans from such lenders as Countrywide, Merrill's First Franklin Financial unit, and the now-bankrupt IndyMac Bancorp Inc and New Century Financial Corp.
Most of the securities later fell to "junk" status and lost value, the investors said.
The case is separate from litigation over Countrywide mortgage debt being handled by a Los Angeles federal judge.
It is also separate from Bank of America's proposed $8.5 billion settlement with investors in 530 mortgage securitization trusts with $174 billion of unpaid principal. That accord was negotiated by Bank of New York Mellon Corp as trustee.
The case is Public Employees' Retirement System of Mississippi et al v. Merrill Lynch & Co et al, U.S. District Court, Southern District of New York, No. 08-10841.
(Reporting by Jonathan Stempel in New York; Additional reporting by Alison Frankel; Editing by Derek Caney and John Wallace)
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