Risk & Compliance

BofA Pays Tutor Perini $37M to Settle Fraud Case

Tutor Perini alleged the bank did not disclose the ARS market was heading for collapse when it sold the securities to the company.
Matthew HellerJune 7, 2017
BofA Pays Tutor Perini $37M to Settle Fraud Case

Bank of America has paid Tutor Perini $37 million to settle a lawsuit that alleged it sold millions of dollars in auction-rate securities to the construction company without disclosing the market was heading for collapse.

Tutor Perini said in a regulatory filing that it received the payment on Tuesday in accordance with a settlement agreement finalized on May 31.

The settlement averted a trial of the securities fraud case Tutor Perini filed in 2011, alleging damages as a result of the collapse of the $330 billion auction-rate market in February 2008 when dealers stopped supporting it, leaving investors with illiquid debt that had often been marketed as a cash substitute.

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In reviving the suit in November, a federal appeals court said a reasonable jury could conclude that Banc of America Securities (BAS) “knew perfectly well that it and other broker-dealers were in the midst of a transcendentally awful financial storm, with disaster looming — yet BAS concealed the storm’s existence from Tutor Perini.”

Auction-rate securities are long-term investments backed by such assets as student loans. BAS began selling ARS to Tutor Perini in September 2007 and, by December 2007, the company had become one of BAS’ biggest ARS customers, with about $196 million invested.

According to the appeals court, Tutor Perini “was left holding ‘illiquid’ investments — its nightmare scenario” after the market crashed.

A trial judge in August 2015 granted summary judgment to BAS, agreeing with the bank that it accurately disclosed the market risks to Tutor Perini. BAS also argued the collapse occurred suddenly and it had no idea the market would crumble.

But the 1st Circuit Court of Appeals said the bank “saw danger signs aplenty well before the collapse,” citing an email in which an employee warned in late 2007 that the ARS market was “one step away from illiquidity.”

“[A] rational jury could conclude BAS knew (but elected not to disclose) that the ARS market teetered on the brink of collapse when it encouraged Tutor Perini to snatch up more ARS” in the winter of 2007-08, the court ruled.