BOSTON (TheStreet) -- Among the many investors having a bad day today is Fairholme Fund (FAIRX) - Get The Fairholme Fund Report manager Bruce Berkowitz.

The mutual-fund manager's largest holding is insurer

American International Group

(AIG) - Get American International Group, Inc. Report

, which announced today it is suing

Bank of America

(BAC) - Get Bank of America Corp Report

, which is in the No. 4 position. AIG represents 17% of the $16 billion fund, and Bank of America almost 6%.

Both stocks are taking a beating today, with Bank of America shares the most active, losing 17% of their value, while AIG's shares are down 10%.

Bruce Berkowitz, manager of the Fairholme fund (FAIRX)

Fairholme Funds' motto, "ignore the crowd," is being tested in the stock-market sell-off. The fund is down 21% this year versus the 3.6% decline of the

S&P 500 Index

.

Berkowitz, 52, has been a golden boy among contrarian investors, as he's successfully made big bets on out-of-favor stocks. His fund has a 10-year average annual return of 8.6%, putting it in the top 1% of the large value fund category in terms of performance. The S&P 500 gained 1.8% in the same period

AIG is suing Bank of America for $10 billion over alleged mortgage-securities fraud. AIG claims it lost $28 billion. The insurance conglomerate claims that Bank of America "caused billions of dollars in damage" to its business through alleged "fraudulent activity."

The suit names the bank, its Countrywide Financial mortgage subsidiary and its brokerage arm, Merrill Lynch, for misrepresenting the quality of mortgages placed in securities and sold to investors. The bank acquired both firms in 2008 after the financial industry meltdown of 2008.

Bank of America is the largest U.S.-based financial holding company, with assets of $2.3 trillion.

AIG's lawsuit is specifically tied to hundreds of mortgage-backed securities that the insurer claims Bank of America, Merrill Lynch and Countrywide Financial knew were troubled, according to published reports.

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Bank of America is also facing some other serious challenges that have investors jumping ship.

CNBC

reported today that David Tepper, the manager of the $15 billion hedge fund Appaloosa, sold out his position in Bank of America. At the end of the first quarter, it held 17 million shares. He also reportedly bailed out of the banking firm

Wells Fargo

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, which may be indicative of a souring on financial stocks given the weakening U.S. economy.

Standard & Poor's lowered its rating on Bank of America's shares to "hold" from "strong buy" on Aug. 5 because the bank warned that government-sponsored entities such as

Freddie Mac

(FRM)

and

Fannie Mae

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are toughening the standards by which they will resolve mortgage-repurchase claims. Those issues came along with the purchases of Countrywide and Merrill Lynch. S&P said in its downgrade that those issues are likely to sharply raise the bank's settlement costs.

According to

Bloomberg

, as of Aug. 7, 56% of the 31 analysts covering Bank of America have it rated "hold," 24% "buy" and 20%, "sell."

In what is likely to be a lively discussion, Berkowitz is scheduled to join Bank of America CEO Brian Moynihan on a conference call Aug. 10 to discuss with investors the bank's strategy given the current economic environment and how it is repositioning its balance sheet.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.