Calif. sues Bank of America over bond funds
(Adds BankAmerica response, details)
By Adam Entous
SAN FRANCISCO, May 5 (Reuter) - California's attorney general on Monday sued BankAmerica Corp., the nation's third
largest bank, for allegedly mismanaging billions of dollars of municipal bond funds.
Attorney General Dan Lungren said in the lawsuit, filed in San Francisco Superior Court, that state and local governments
suffered "hundreds of millions of dollars" in damages as a result of the bank's alleged misconduct.
The lawsuit alleged that BankAmerica unit Bank of America overcharged bond issuers, failed to return unclaimed funds from
bond trust accounts to the state, and improperly invested funds from some of the accounts.
In a statement, BankAmerica said the errors were not intentional and that it did not try to cover them up.
"This claim stems from unintentional errors the bank committed in handling municipal bond trust accounts, and we stand ready
to make full repayment to the state and to any bond issuer that was affected by these errors," the bank's general counsel, James
Roethe, said in a statement.
BankAmerica spokesman John Keane said the bank did not believe its financial exposure from the state lawsuit would be
"material."
Campbell Chaney, an analyst with Sandler O'Neill, said it was too soon to say what impact the lawsuit might have on the bank.
"Materiality is in the eye of the beholder," said Chaney. "This whole issue will need more examination."
Lungren's 61-page lawsuit alleged that more than $100 billion of bond funds were placed in state and local government
accounts administered by the bank between 1978 and 1993. "The bank lost money in those accounts through errors, mistakes,
theft and poor management," the lawsuit alleged.
The lawsuit was based on a so-called "whistleblower" complaint filed under seal in April 1995 by Patrick Stull, a former vice
president for corporate trust at Bank of America.
Lungren said his office investigated Stull's allegations for two years. The investigation centered on Bank of America's
Institutional Trust Department, which it sold in 1995. The department acted as trustee and paying agent for municipal bond
issues of the state of California and local governments.
The state's lawsuit was similar to one filed last week by San Francisco, which alleged BankAmerica mishandled hundreds of
millions of dollars of bond funds and engaged in a cover-up. San Francisco is seeking at least $12 million in damages.
Lungren's lawsuit names as defendants BankAmerica and its unit, Bank of America.
State officials said they were surprised California would take on BankAmerica -- the state's largest bank and one of its largest
private employers -- given their long-standing relationship.
In the 1930s, the bank stepped in to buy the bonds to complete construction of San Francisco's world-famous Golden Gate
Bridge when few other buyers were interested.
In the summer of 1994, California turned to Bank of America to help raise billions of dollars to pay the state's bills and finance
its budget deficit during California's worst recession since the 1930s. |
