A.I.G. to Sue Bank of America Over Mortgage Bonds

The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor.

It claims that Bank of America and its Merrill Lynch and Countrywide Financial units misrepresented the quality of the mortgages placed in securities and sold to investors, according to three people with knowledge of the complaint.

A.I.G., still largely taxpayer-owned as a result of its 2008 government bailout, is among a growing group of investors pursuing private lawsuits because they believe banks misled them into buying risky securities during the housing boom. At least 90 suits related to mortgage bonds have been filed, demanding at least $197 billion, according to McCarthy Lawyer Links, a legal consulting firm. A.I.G. is preparing similar suits against other large financial institutions including Goldman Sachs, JPMorgan Chase and Deutsche Bank, said the people with knowledge of the complaint, as part of a litigation strategy aimed at recovering some of the billions in losses the insurer sustained during the financial crisis.

The private actions stand in stark contrast to the few credit crisis cases brought by the Justice Department, which is wrapping up many of its inquiries into big banks without filing any charges. The lack of prosecutions — the Justice Department has brought three cases against employees at large financial companies and none against executives at large banks — has left private litigants, mainly investors and consumers, standing more or less alone in trying to hold financial parties accountable.

“When federal authorities don’t fulfill their obligation to enforce the law, they essentially give an imprimatur to the financial entities to do whatever they want and disregard the law,” said Kathleen C. Engel, a professor at Suffolk University Law School in Boston. “To the extent there are places where shareholders and borrowers can pursue claims, they are really serving the function of the government. They are our private attorneys general.”

Though many in the public have called for more accountability for parties involved in the financial crisis, criminal charges on complex financial matters can be difficult to prosecute.

A spokeswoman for the Justice Department said the government was vigorously pursuing cases where appropriate, and she pointed to a recent jail sentence for the chairman of the mortgage company Taylor, Bean Whitaker. The spokeswoman, Alisa Finelli, declined to say how many people the government had assigned to that task.

“Prosecutors and agents determine on a case by case basis the importance of relevant evidence developed in private litigation and how such evidence should be pursued,” Ms. Finelli said. “Civil litigation involves a lower standard of proof than is required for a criminal prosecution, where prosecutors must have sufficient evidence to prove beyond a reasonable doubt that a crime has been committed.”

On Friday, the department announced it had concluded its investigation into Washington Mutual, the Seattle-based bank that nearly collapsed because of its risky mortgages, without finding evidence of criminal wrongdoing. The Justice Department has also concluded its investigation into Countrywide’s conduct leading into the financial crisis, according to a person with knowledge of that case.

Even more investigations may soon be shut down because the Justice Department is heavily involved in negotiations between big banks and state attorneys general that may give the banks broad immunity against future claims. The state attorneys general are weighing these requests in the mortgage servicing and foreclosure cases, even though the government has not pursued the most basic investigation of these practices.

As it has in similar cases, Bank of America is likely to dispute A.I.G.’s claims, in the suit, which is expected to be filed on Monday in New York State Supreme Court. When asked generally about the quality of mortgage bonds issued by companies that are now part of the bank, Lawrence Di Rita, a spokesman for Bank of America, said the disclosures were robust enough for sophisticated investors. He said many of the loans lost value because housing fell.

“Now you have a lot of investors and lawyers who are seeking to recoup the losses from an economic downturn,” Mr. Di Rita said. The bank has not yet seen A.I.G.’s suit.

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