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AIG suing Bank of America for fraud

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NEW YORK (CNNMoney) — Insurer American International Group, whose stock is down more than 50% this year, is suing Bank of America for alleged mortgage securities fraud, which it claims “caused billions of dollars in damage” to its business.

AIG shares were down 3.4% while shares of Bank of America fell 7.6% in early Monday trading.

AIG’s lawsuit is specifically tied to hundreds of mortgage-backed securities that the insurer claims Bank of America — and its Merrill Lynch and Countrywide Financial units — knew were not top quality, according to published reports.

The insurer is seeking to recover more than $10 billion in losses from Bank of America on $28 billion of investments, in what could be the largest mortgage-security-related action filed by a single investor, the reports said.

“We are bringing this suit today to protect AIG and the taxpayers’ stake in it,” AIG spokesman Mark Herr said in a statement.

“As AIG has said in the past, we are looking carefully at what counterparties and others have done to AIG, and we intend to take legal action against those who have harmed us,” he said.

Herr added: “This is not the first lawsuit that AIG has filed against counterparties that have sought to profit at our expense, and we anticipate that it will not be the last.”

Back in 2008, the government gave AIG a $180 billion lifeline to keep the insurance company out of bankruptcy at the height of the financial crisis.

AIG has been slowly working toward paying back that loan. It made some progress on that front in May, when it sold 100 million shares, while Treasury, the bailed-out insurer’s biggest shareholder, sold 200 million shares.

Earlier this month, AIG posted a second-quarter profit, even though its shares plunged to their lowest level since early last year.

Bank of America could not immediately be reached for comment.

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