NEW YORK (TheStreet) -- Shares of Bank of America (BAC_) on Wednesday were down over 2% in early afternoon trading, after the bank was charged with securities fraud by the Department of Justice and the Securities and Exchange Commission.
The Justice Department late on Tuesday announced it had filed a civil complaint in the U.S. District Court in Charlotte, N.C., charging Bank of America with making "false and misleading statements," when it sold over $850 million in mortgage-backed securities in February 2008 to a group of investors that included the Federal Home Loan Bank of San Francisco and Wachovia Bank.
Wachovia Bank and its parent company were acquired by Wells Fargo (WFC_) in December 2008.
The Justice Department said that Bank of America and subsidiaries, including Merrill Lynch, "lied to investors about the relative riskiness of the mortgage loans backing the residential mortgage-backed securities (RMBS), made false statements after intentionally not performing proper due diligence and filled the securitization with a disproportionate amount of risky mortgages originated through third party mortgage brokers."
According to the complaint, 40% of 1,191 mortgage loans in a pool securitized by Bank of America "to materially adhere to Bank of America's underwriting standards."
The SEC filed a similar complaint, saying in a press release that "Bank of America failed to tell investors that more than 70 percent of the mortgages backing the offering - called BOAMS 2008-A - originated through the bank's 'wholesale' channel of mortgage brokers unaffiliated with Bank of America entities."
The SEC took the opportunity to be even more colorful than the Justice Department in its release, saying the bank "knew that such wholesale channel loans - described by Bank of America's then-CEO as 'toxic waste' - presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment."
The administration is desperate to be able to show that they are holding Wall Street accountable for their "crimes". Unfortunately, the word "fraud" has a lot of stigma attached, so even if BAC settles, or even wins the case, the damage has already been done. BAC's reputation is already bad and this only confirms it in people's minds.