A federal judge said Deutsche Bank AG and a unit of BNP Paribas SA can proceed with legal claims against Bank of America, according to a report by Dow Jones.
The companies are suing over losses suffered when a unit of mortgage banker Taylor, Bean & Whitaker collapsed in the summer of 2009.
Judge Robert Sweet of the U.S. District Court in Manhattan said that Deutsche Bank and BNP Paribas Mortgage Corp. can proceed with breach-of-contract suits against B of A for failing to secure $1.75 billion in cash and mortgage loans on their behalf.
Sweet said the banks have a "plausible claim" against B of A (which served as the collateral agent) for improperly transferring more than $3.8 billion in funds from accounts at Taylor Bean's Ocala Funding mortgage conduit at the mortgage lender's request.
B of A has denied responsibility and moved to have the cases dismissed. Sweet granted Bank of America's bid to dismiss several of the banks' claims for breaches of various agreements. He also tossed BNP Paribas (the parent, not the mortgage unit) from the lawsuit.
Lawyers for B of A, Deutsche Bank and BNP Paribas were not available for comment.
The banks were investors in notes issued by Ocala Funding. The lawsuits filed in 2009 allege that Bank of America failed to redeem $480.7 million in secured notes held by BNP Paribas and $1.2 billion held by Deutsche Bank.
Taylor Bean created the conduit in 2005 to buy its home loans, which were then bundled into securities and sold to investors. It funded its business by issuing short-term notes that it sold to investors. Bank of America served as the trustee for notes issued by Ocala.
The conduit was a key element in what federal prosecutors said was a multibillion-dollar fraud orchestrated by Taylor Bean founder Lee Farkas and which brought down Alabama's Colonial Bank. Colonial was TBW's largest warehouse provider and was almost bought by the lender until fraud was discovered.
