Court freezes Colonial assets in response to BofA suit

CHARLOTTE, N.C. (AP) — A federal court froze $1 billion of troubled Colonial Bancgroup Inc.’s assets Thursday in response to a suit filed by Bank of America Corp.

Bank of America Corp. sued Colonial for more than $1 billion in cash and loans, and asked the court to prevent Colonial from selling or otherwise disposing of the assets.

Bank of America said the U.S. District Court for the Southern District of Florida, in response to a complaint filed Wednesday, granted a temporary restraining order freezing the $1 billion held by Montgomery, Ala.-based Colonial.

Court officials could not immediately be reached to confirm the order was granted.

Bank of America had asked the court to prevent Colonial from selling proceeds it received from Freddie Mac in exchange for mortgage and other loans, and which were owned by Ocala Funding LLC, court documents show.

Charlotte, N.C.-based Bank of America, which was the collateral agent for the Ocala Funding loans, sought an emergency injunctive relief in the complaint.

According to court documents, Colonial held the proceeds as a custodian, agent and bailee through bailee letters. But when the bailee letters were terminated, Colonial refused to return them to Bank of America, the U.S. banking giant alleged.

“The emergency relief is necessary because Colonial appears to be on the verge of collapsing as a going concern and has reportedly been the subject of a criminal investigation for alleged accounting irregularities,” the complaint said.

Representatives from both Bank of America and Colonial declined to comment on the lawsuit.

Shares of Bank of America gained $1.07 cents, or 6.7 percent, to $17.00 in trading Thursday, while Colonial shares fell 5 cents, or 9.6 percent, to 47 cents.

The lawsuit could push Colonial into further financial trouble.

On Tuesday, Colonial said it has advised the Securities and Exchange Commission it will not be able to file a second-quarter financial report because of alleged accounting irregularities now being investigated.

The Alabama Banking Department also confirmed Tuesday that its board held a private meeting with Colonial officials on Monday.

Colonial said last week it was under a criminal investigation by the Justice Department over the alleged accounting irregularities at its mortgage warehouse lending unit in Orlando, Fla. It was announced earlier that Colonial was the subject of a Securities and Exchange Commission investigation related to its bid for federal bailout funds and its accounting for loan loss reserves.

Colonial, which previously reported roughly $26 billion in assets, has 335 branches in Florida, Alabama, Georgia, Texas and Nevada.

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