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Merrill $315M mortgage pact wins OK from Rakoff


NEW YORK (Reuters)—A federal judge has given final approval to Bank of America Corp.'s agreement to pay $315 million to settle claims by investors who said they were misled about mortgage securities offerings by its Merrill Lynch unit.

U.S. District Judge Jed Rakoff in Manhattan said "the settlement is, in all respects, fair, reasonable, and adequate, and in the best interests of the settlement class members," in an order made public on Tuesday.

The settlement is among the largest between a U.S. bank and investors over the sale of seemingly safe mortgage-backed securities that proved toxic as housing conditions worsened.

It is part of the Charlotte, N.C.-based bank's effort to address its legal liabilities stemming from its purchases of Merrill on Jan. 1, 2009, and mortgage lender Countrywide Financial Corp. six months earlier.

Investors led by the Public Employees' Retirement System of Mississippi pension fund had accused Merrill of misleading them about the risks of $16.5 billion of mortgage-backed securities in 18 offerings made between 2006 and 2007.

They said Merrill's offering documents misled them about the quality of the underlying home loans, which came from such lenders as Countrywide, Merrill's First Franklin unit, and the now-bankrupt IndyMac Bancorp Inc. and New Century Financial Corp.

Bank of America did not admit wrongdoing in agreeing to settle. It is the second-largest U.S. bank by assets.

Judge Rakoff is the same judge who in November rejected Citigroup Inc.'s agreement to pay $285 million to settle a fraud lawsuit brought by the U.S. Securities and Exchange Commission.

Citigroup and the SEC have appealed that decision, in which Judge Rakoff attacked the longstanding SEC practice of allowing companies to settle without admitting wrong, and said the accord did not serve the public interest.

Legal experts have said the Citigroup case is different, and that consideration of the public interest need not have been a factor in Judge Rakoff's review of the Bank of America settlement with private investors.

Banks face hundreds of other investor lawsuits raising similar claims.

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