Allstate (NYSE: ALL) Latest To Sue Bank of America (NYSE: BAC)

Bank of America (NYSE: BAC), the battered Charlotte based bank, has been at the center of controversy since the financial crisis began. With it’s acquisitions of Countrywide and Merrill Lynch, the firm strives to diversify and capitalize on it’s size. With these business units though come new issues – namely, lawsuits.

Allstate Corp has sued Bank of America Corp, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide. Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered “significant losses” after Countrywide misled it into believing the securities were safe, and the quality of home loans backing them was high. Allstate said that starting in 2003, Countrywide quietly decided to boost market share and ignore its own underwriting standards by approving any mortgage product that a competitor was willing to offer, in a “proverbial race to the bottom.”

Clearly, the banks are under a litigious attacks. With Italy suing many of the major banks over derivative deals, and state Attorney Generals clammorning to sue over foreclosure practices, the banks have their work cutout for them.

“Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default,” said the 150-page complaint filed on Monday in Manhattan federal court. Allstate seeks to undo its securities purchases, which took place between 2005 and 2007, plus unspecified damages.

A spokesman, Bill Halldin, in an email said the Charlotte, North Carolina-based bank is reviewing the complaint. “This unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made,” he said. David Siegel, a partner at Irell & Manella LLP who represents Mozilo, said in an email that Allstate has “retread allegations with no merit; and certainly no basis to name Mr. Mozilo other than to try to capture publicity.”

Investors suing after incurring losses is nothing new – though, claiming ignorance, by a large financial institution like Allstate is rather remarkable. Either the firm invested their money without understanding the investments, or they understood what they were getting into and later were angered by the losses. Determining which is more troubling is cause for concern.