Prudential Sues Bank of America for 'Racketeering'

NEW YORK ( TheStreet) -- Prudential Financial ( PRU) has sued Bank of America ( BAC), alleging the bank and Merrill Lynch engaged in "racketeering" in connection with mortgage-backed securities sales, according to a Reuters blog post.

Prudential spokesman Bob DeFillippo confirmed the insurer "did bring an action against Bank of America that concerns residential mortgage backed securities," but offered no further comment.

A call to Bank of America seeking comment was not immediately returned.

According to the Reuters blog post, Prudential is seeking damages because Bank of America and Merrill Lynch engaged in a "massive multiyear scheme" to defraud the insurer through the sale of $2 billion in mortgage-backed securities from 2004 to 2007.

A review of 4,500 loan files in connection with the securities sales by American International Group found that 90% of the loans securitized by Bank of America or Merrill Lynch didn't meet those companies' underwriting guidelines, according to the Reuters blog post.

The lawsuit was filed in the U.S. District Court of the District of New Jersey, and alleges that Bank of America and Merrill Lynch violated New Jersey's Racketeer Influenced and Corrupt Organizations Act, according to the blog post.

Bank of America in January agreed to a $10.3 billion settlement of a long-term dispute with Fannie Mae, over mortgage repurchase claims.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.