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BofA (BAC) to Face Lawsuit for Sale of ARS to Tutor Perini

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According a Reuters report, a U.S. appeals court reintroduced a lawsuit against Bank of America Corporation (BAC - Free Report) , accusing it of selling millions of dollars of auction-rate securities (ARS) to Tutor Perini Corporation, at a time when such securities were on the verge of collapse.

Auction-rate securities are debt instruments whose interest rate is set regularly through a dutch auction. However, since 2008 such actions have failed and the market has been frozen for ARS.

Tutor Perini accused BofA of forcing it to buy such securities in late 2007 and early 2008, despite being aware that dealers had stopped supporting such securities and that the market was "one step away from illiquidity."

Notably, it estimated that including interest, its losses stand at more than $50 million.

In Aug 2015, Nathaniel Gorton, the U.S. District Judge, dismissed the Tutor Perini's lawsuit. He said that BofA had made various disclosures to the California-based construction company and hence "had no duty to disclose all facts" reflecting the risks.

However, Ojetta Rogeriee Thompson, the circuit judge, while writing for the appeals court said that worsening conditions might have compelled the bank to give warning of new risks which made its initial recommendations stale.

Thompson further added, "a reasonable jury could find that while (the bank) was taking steps to protect itself, it urged an unsuspecting Tutor Perini to walk right off the cliff."

To this, Lawrence Grayson, BofA’s spokesman refused to comment.

George Carpinello, Tutor Perini’s lawyer said, "The court recited chapter and verse from Bank of America's own emails as to how the bank knew the market was on the verge of collapse, and decided that one way out of the crisis was to dump securities on unsuspecting investors."

Currently, Bank of America carries a Zacks Rank #2 (Buy).

Some other stocks in the finance space worth considering include Farmers Capital Bank Corporation (FFKT - Free Report) , Comerica Incorporated (CMA - Free Report) and The Bank of New York Mellon Corporation (BK - Free Report) .

Farmers Capital has witnessed an upward earnings estimate revision of 8.3% for the current year in the past 30 days. Also, its share price is up 21.7% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comerica carries a Zacks Rank #2 and witnessed an upward earnings estimate revision of nearly 1.7% for the current year over the past 30 days. Moreover, its share price is up 45.7% year to date.

Bank of NY Mellon also carries a Zacks Rank #2. It has witnessed an upward earnings estimate revision of 3.6% for the current year over the past 30 days and its share price has increased 15% year to date.

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