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Last witness testifies against $8.5 billion BofA deal

A sign for a Bank of America office is pictured in Burbank, California August 19, 2011. REUTERS/Fred Prouser
A sign for a Bank of America office is pictured in Burbank, California August 19, 2011. REUTERS/Fred Prouser

By Karen Freifeld

NEW YORK (Reuters) - An expert witness testified on Thursday that Bank of America Corp's proposed $8.5 billion settlement with mortgage bond investors is "not reasonable" and rife with conflicts of interest, as opponents made a final push to derail the deal.

Adam Levitin, a law professor at Georgetown University in Washington, is the last scheduled witness in a long-running case over whether the deal should be approved.

"My opinion is the settlement was not entered into in good faith," Levitin said in state court in New York.

Bank of America agreed to the deal in June 2011 to resolve claims over shoddy mortgage-backed securities issued by Countrywide Financial Corp. in the run-up to the financial crisis. Bank of America bought Countrywide in 2008.

Twenty-two institutional investors, including BlackRock Inc, MetLife Inc and Allianz SE's Pacific Investment Management Co sign onto the accord.

Opponents led by insurance company American International Group Inc accuse Bank of New York Mellon Corp , the trustee overseeing the securities, of placing its interests above those of bondholders by entering into the settlement.

The proceeding, which began in New York State Supreme Court in June before Justice Barbara Kapnick, has been in recess since late September.

Testifying for the objectors who resumed their case on Thursday, Levitin said that BNY Mellon had an incentive to "curry favor" with Bank of America because "that's where it's going to get its business from."

Levitin said the settlement, in his opinion "was not reasonable, that it was not prudent, and that it was not consistent with the good practices" of trustees. He also accused BNY Mellon of looking out for its own interests and not those of investors.

Bank of New York Mellon has said allegations it had a conflict of interest are "false and irrelevant" and that the settlement is reasonable.

Lawyers for the bank, the 22 institutional investors and even the judge repeatedly questioned how Levitin was qualified to testify about the customs and practices of residential mortgage-backed securities trustees.

"I've been trying since this morning to find where his ability and his experience to testify" comes from, "and I haven't been able to get that," Justice Kapnick said before adjourning for the day.

Asked from where derives his expertise, Levitin replied, "I teach about this stuff."

Levitin is a member of the Consumer Financial Protection Bureau's consumer advisory board, and from 2008 to 2010 he was special counsel for mortgage affairs on a congressional panel that oversaw the Troubled Asset Relief Program (TARP).

His testimony is set to resume Friday. Summations are scheduled to begin Monday. It is not known when Kapnick will issue a ruling.

Levitin was called as a witness by American International Group, one of a dwindling number of those opposed to the deal.

The Federal Home Loan Banks of Boston, Chicago and Indianapolis withdrew their opposition on November 1, as did the hedge fund Cranberry Park.

The attorneys general of New York and Delaware, who intervened in the case two years ago, said in May they would not block the accord.

The proposed settlement has been viewed as a template for other banks to put their mortgage-backed securities problems behind them.

JPMorgan Chase & Co is nearing a similar agreement worth close to $6 billion with a group of institutional investors, according to a person familiar with negotiations.

The case is In re Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.

(Reporting by Karen Freifeld; Editing by Andre Grenon and Leslie Gevirtz)

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