As Bank of America’s proposed $8.5 billion deal to resolve put-back claims by Countrywide mortgage-backed certificate holders comes under increased scrutiny, including a new inquiry by New York attorney general Eric Schneiderman and two newly-filed objections to the deal by major investor groups, some very intriguing news has emerged about Grais & Ellsworth, the prominent MBS investors’ firm that’s leading the charge against the BofA settlement.
Grais & Ellsworth filed new objections to the deal on behalf of two investor groups with large Countrywide MBS holdings Wednesday. But its first objection to the BofA settlement came on behalf of a coalition of MBS investors under the name Walnut Place, which had sued Bank of America in February. (Walnut Pace asserted put-back claims in two of the 530 trusts that offered Countrywide mortgage-backed certificates.) In a July 5 petition to intervene in the New York state supreme court proceeding to evaluate the proposed $8.5 billion BofA deal, Walnut Place raised some pretty serious questions about Bank of New York Mellon’s strong motivation, as trustee for the Countrywide MBS offerings, to go along with BofA’s proposal. Grais & Ellsworth also criticized the trustee for having “negotiated [the global deal] in secret, without the knowledge or consent of Walnut Place.”
That accusation of secret negotiations designed to cut out Walnut Place seems like powerful evidence of a potentially collusive deal—but according to Bank of New York Mellon, it’s just not true. In a July 11 response to the Grais & Ellsworth filing, the trustee’s lawyers at Mayer Brown say Grais & Ellsworth was invited to join settlement discussions between Bank of America and the Gibbs & Bruns investor group that ultimately negotiated the proposed deal. But instead of opting to participate in the process, Grais & Ellsworth proceeded to file Walnut Place’s suit against BofA. Mayer Brown asserts.
“Bank of America and Countrywide told counsel for Walnut Place that they were negotiating a settlement,” the Mayer Brown July 11 filing says. “They offered to report to Walnut Place on a current and ongoing basis about settlement discussions, and to provide confidential information that the parties were evaluating in connection with the settlement. And they invited Walnut Place to provide input on settlement discussions.”
In an accompanying affidavit, Mayer Brown partner Matthew Ingber detailed discussion between BofA and Grais & Ellsworth. According to the affidavit, Bank of America lawyers met with Grais & Ellsworth, after the firm had demanded that Bank of New York, as trustee, commence a breach-of-warranties suit against BofA. At that meeting, on February 2, Grais & Ellsworth was informed that BoNY and BofA were “actively negotiating a settlement that could resolve the issues raised by [Grais & Ellsworth’s client] Walnut Place,” Ingber says. The law firm was “invited to provide input on settlement discussions,” the affidavit asserts, and was asked “to delay the filing of any lawsuit temporarily so that settlement negotiations could run their course.” Three weeks after the meeting, however, Grais filed the Walnut Place suit against BofA.