MANHATTAN (CN) – A federal judge denied Banc of America Securities’ request for a new trial in a 1998 case in which AIG Global Securities and seven others claimed they lost nearly $120 million after BofA misrepresented securities backed by installment sales contracts from now-bankrupt Heilig-Meyers Furniture Co.
After a seven-week trial, a jury found the defendants liable and in December awarded the plaintiffs $141 million, which included interest.
The investors had accused Bank of America of fraud in its sale of more than $600 million in securities offered by Heilig-Meyers. The securities lost nearly all of their value when the company went bankrupt in 2002. The plaintiffs bought more than $300 million worth.
U.S. District Judge John G. Koeltl agreed that the plaintiffs had proved that BofA knew the securities it sold were worth significantly less than they were marketing. The plaintiffs contend Nationsbanc – acquired by Bank of America in 1998 – deceived investors by claiming the assets were high-quality. They claimed Nationsbanc failed to disclose a second set of Heilig-Meyers’ books and provided investors with incomplete loan delinquency figures.
The defendants claimed that testimony of the plaintiffs’ expert witness was flawed, that credit rating agencies’ high ratings of the securities were justified and that the plaintiffs did not prove that fraud caused the drop in the stock price. They also cited the general verdict rule, alleging each of the four ways in which the plaintiffs say they misrepresented the quality of the assets constituted a separate theory of liability. But the judge said the rule does not apply to this case because the plaintiffs pursued a single fraud claim and a single theory of fraud, which they claimed the defendants perpetrated in four ways.
Even if the general verdict rule applied, it does not appear it would have mattered due to the lack of evidence presented by the defendants, Judge Koelti ruled.
“For a district court to order a new trial, it must conclude that the jury has reached a seriously erroneous result or the verdict is a miscarriage of justice,” Judge Koeltl ruled. “The evidence cited by the defendant in support of its position falls far short of the kind of undisputed or overwhelming evidence required to overturn a jury verdict.”
Allstate Life Insurance Co., the New York branch of Bayerische Landesbank, Societe Generale, the Travelers Companies and the International Finance Corp. are among the other plaintiffs.