$600 Million Countrywide/BofA Settlement Approved by Judge

A federal judge in Los Angeles on Friday approved a $601.5 million settlement of a class-action suit against Countrywide Financial Corp., one of the largest class-action settlements stemming from the subprime mortgage crisis, a lawyer for the plaintiffs said.

The case, filed in 2007, alleged that Countrywide, now a unit of Bank of America Corp., misled investors about its financial condition and lending practices, failing to disclose the extent of subprime loans it held.

The settlement approved on Friday by Judge Mariana Pfaelzer includes an additional so-called “set aside” of $22.5 million, which Bank of America can use to settle future cases with investors who opted out of the class action. If it is not used in two years, it will go to the shareholders in the current settlement.

Joel Bernstein, a partner at Labaton Sucharow who represented the lead plaintiffs, said it was an “excellent settlement” for the class.

“If these institutions who opted out decide to bring their own cases, they will have their own battles,” he said.

Bank of America agreed to the settlement to “avoid the additional expense and uncertainty associated with continued litigation,” Shirley Norton, a spokeswoman for the bank, said in an e-mail.

More than 30 investors, including large institutional shareholders such as the California Public Employees’ Retirement System, Teachers Retirement System of Texas and BlackRock Investment Management LLC, said in October they were opting out.

That development allowed Bank of America to pull out of an earlier settlement, inked in May, in which Bank of America would have paid $600 million and Countrywide’s former auditors, KPMG LLP, would have paid $24 million.

Investors typically opt out of major settlements when they believe that they can get a better deal if they file their own lawsuits. They usually decide to do that after the lead plaintiffs have already cut a deal with the defendants, as happened in the Countrywide case.

“At this point, the company wants to wind it up and make it go away, so opting out might get (shareholders) a better deal than participating,” said Michael Perino, a professor of securities law at St. John’s University School of Law.

Some opt-out investors, including funds belonging to the states of Oregon and Michigan and retirees from Fresno, California, have already sued Bank of America separately.

Other opt-outs may be waiting in the wings. Blair Nicholas, a partner at Bernstein Litowitz Berger & Grossmann who represents 16 large institutional opt-outs, said he will “vigorously pursue” Bank of America. In the past he has represented opt-out claims on behalf of shareholders who sued Tyco International, Qwest Communications and Marsh & McLennan.

About 970 institutional investors held stock in Countrywide during the period covered by the lawsuit, Bernstein said.

At the hearing, Judge Pfaelzer also approved Labaton Sucharow’s request for attorneys’ fees, Bernstein said. The firm, which represents New York state retirement funds, had cut its request to $46.47 from $47.37 million.

(Reporting by Carlyn Kolker of Reuters Legal; Editing by Eric Effron and Eddie Evans)