A proposed $8.5 billion settlement between Bank of America Corp. and investors angry about faulty mortgage securities will go before a judge on Monday.

The June 2011 deal was intended to settle claims brought by multiple institutional investors who held bonds issued by Countrywide Financial Corp., which Bank of America acquired in 2008. Twenty-two of the investors—among them BlackRock Inc., Allianz SE's Pacific Investment Management Co. and MetLife Inc.—signed on to the deal.

Sixty-five other investors, however, including American International Group Inc. and the home loan banks of Chicago, Boston and Indianapolis, say that the plan “offers pennies on the dollar” on the money they lost on the bonds.

They also accuse BNY Mellon, the trustee which mediated the deal on behalf of 530 trusts that bought the securities in question, of putting its own interests and those of its “business partner” Bank of America ahead of investors.

BNY Mellon, for its part, contends that it acted reasonably in agreeing to the settlement and that the investors will recover more in the proposed deal than they would from Countrywide alone, the Washington Post (WP) reports.

It now falls to Justice Barbara Kapnick of the N.Y. State Supreme Court to sort out the muddle. If Kapnick rejects the deal, it could send the case to litigation. In that event, the investors would have to prove that Bank of America should be held liable for Countrywide's actions, according to the WP.

For more InsideCounsel coverage of the financial crisis fallout, see:

A proposed $8.5 billion settlement between Bank of America Corp. and investors angry about faulty mortgage securities will go before a judge on Monday.

The June 2011 deal was intended to settle claims brought by multiple institutional investors who held bonds issued by Countrywide Financial Corp., which Bank of America acquired in 2008. Twenty-two of the investors—among them BlackRock Inc., Allianz SE's Pacific Investment Management Co. and MetLife Inc.—signed on to the deal.

Sixty-five other investors, however, including American International Group Inc. and the home loan banks of Chicago, Boston and Indianapolis, say that the plan “offers pennies on the dollar” on the money they lost on the bonds.

They also accuse BNY Mellon, the trustee which mediated the deal on behalf of 530 trusts that bought the securities in question, of putting its own interests and those of its “business partner” Bank of America ahead of investors.

BNY Mellon, for its part, contends that it acted reasonably in agreeing to the settlement and that the investors will recover more in the proposed deal than they would from Countrywide alone, the Washington Post (WP) reports.

It now falls to Justice Barbara Kapnick of the N.Y. State Supreme Court to sort out the muddle. If Kapnick rejects the deal, it could send the case to litigation. In that event, the investors would have to prove that Bank of America should be held liable for Countrywide's actions, according to the WP.

For more InsideCounsel coverage of the financial crisis fallout, see: