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Mortgage lender Residential Capital is poised to reap billions in a bankruptcy auction of its assets next month, Reuters reported yesterday. Instead of being forced to hold a fire sale, ResCap has lined up high-profile bidders, including Fortress Investment Group's Nationstar Holdings and Warren Buffett's Berkshire Hathaway Inc., for an October 23 auction that could raise the money it needs to repay creditors. The key asset on the block is ResCap's mortgage loan servicing and loan origination business. The sale is expected to raise at least $4 billion, which will then become part of a pool of money used to pay back Ally and other investors, including those who bought mortgage-backed securities tied to ResCap home loans that went bad.

Bankruptcy Judge Martin Glenn said yesterday that he was prepared to allow the trustee unwinding MF Global's broker-dealer to join forces with some of the company's former customers who have sued ex-Chief Executive Jon Corzine and other insiders, Reuters reported yesterday. Judge Glenn said that he will make his decision official when the trustee, James Giddens, files court papers outlining the details of the cooperative effort. The filing will reflect language changes requested by Judge Glenn, particularly over concerns about how proceeds of the class actions would be allocated among MF creditors. Judge Glenn ordered the plan's language updated to address objections by the defendants in the class actions, and by Louis Freeh, the trustee liquidating MF Global's parent entity.

Citigroup Inc., Goldman Sachs Group Inc. and UBS AG were sued separately in New York over losses on $368.7 million in mortgage-backed securities, Bloomberg News reported yesterday. The three banks made "material misrepresentations" about the loans backing the securities and about the transfer of the loans into trusts, according to filings yesterday in New York State Supreme Court. IKB Deutsche Industriebank AG sued Citigroup over losses on $137.4 million in mortgage securities and also sued Goldman Sachs over $73.2 million in securities. IKB, a German lender, said it sold the securities at a loss. UBS, based in Zurich, was sued by Sealink Funding Ltd. over $158.1 million in bonds. The securities at issue in the UBS case are either held by Sealink or were previously sold at a loss, according to court papers.

American International Group Inc. is seeking to raise around $2 billion by selling more shares in AIA Group Ltd., its former pan-Asian life insurance unit, as it continues to repay the U.S. government bailout it received during the 2008 financial crisis, the Wall Street Journal reported today. The U.S. insurer also said that it plans to buy back another $5 billion in stock from the U.S. Treasury. AIG has been aggressively buying back shares this year and is expected to buy more from the Treasury this fall, as part of a push that could make the U.S. government a minority shareholder before the November elections and enable the company to fully repay its bailout sooner than expected. The Treasury Department sold $5 billion worth of shares in AIG last month, its fourth sale so far, reducing the government's stake to 55 percent and bringing down the amount the government needs to recoup from the bailout to $25 billion.

MBIA Inc. settled a class-action lawsuit over investors' claims that it materially misstated financial results by engaging in improper accounting practices, both sides informed a federal court, Bloomberg News reported yesterday. The accord, for $3.75 million, will be distributed to investors who purchased or otherwise acquired MBIA common stock from Aug. 5, 2003, through March 30, 2005, the parties said in court papers. A federal appeals court in February 2011 reinstated the case after U.S. District Judge Louis Stanton dismissed it four years earlier, saying that the plaintiffs waited too long to file their case. Judge Stanton said that the statute of limitations had expired because the investors had notice of alleged wrongdoing in 2002. The appeals court said that the trial judge improperly calculated the statute of limitations.

Two former Washington Mutual Bank units have reached a $26 million settlement agreement over claims they misled investors over the sale of mortgage-backed securities, Reuters reported yesterday. Lawyers for plaintiffs filed a notice of the settlement on Monday in U.S. federal court in Seattle, averting a trial that was scheduled to begin on Sept. 17. The lawsuit alleged that registration documents filed in connection to the securities failed to accurately describe WaMu's underwriting practices. The case is In Re Washington Mutual Mortgage-Backed Securities Litigation, 09-00037.

The scandal over global interest rates has state officials working intensely behind the scenes to build a case for suing the nation’s largest banks, the New York Times reported today. The attorneys general in Maryland, Massachusetts, New York and Connecticut have all been examining how much their states may have lost as a result of a lowered Libor. A spokeswoman for Connecticut’s attorney general, George C. Jepsen, said that the state’s work with New York’s attorney general, Eric T. Schneiderman, "has broadened significantly over the last few weeks and we are now coordinating with a much larger group of attorneys general." Even before the British bank Barclays admitted in June that its employees had tried to manipulate Libor, there were a number of lawsuits filed by cities and municipal agencies seeking damages from large banks for manipulating Libor. But while those cases were filed by private sector lawyers, the public officials are looking at bringing more wide-ranging lawsuits on behalf of the states. The Justice Department has coordinated with the states and is leading its own investigation.

Ira Bodenstein, the bankruptcy trustee for Peregrine Financial Group, may use lawsuits to try to recover funds missing from customer accounts at the collapsed brokerage, Reuters reported yesterday. "The trustee believes that there are significant causes of action that have to be investigated and may have to be pursued," Bodenstein said in a court filing yesterday. Nearly two months have passed since Peregrine Financial's CEO Russell Wasendorf Sr. was found incoherent in his car with a hose hooked up his exhaust pipe and a note detailing years of bilking clients out of more than $100 million. The firm filed for Chapter 7 bankruptcy on July 10, but so far, none of the firm's 24,000 customers have had any of their money returned as part of the liquidation process.

Bain Capital LLC and Apollo Global Management LLC are among private-equity firms subpoenaed by New York's attorney general in an investigation into whether they are depriving the state of tax revenue, Bloomberg News reported on Sunday. New York Attorney General Eric Schneiderman is probing a practice that reduces tax liability of the buyout firms by converting management fees paid by their investors into fund investments, which are taxed at a lower rate. At least a dozen firms were subpoenaed in July, one of the people said. Other firms that received subpoenas include KKR & Co., TPG Capital, Silver Lake and Providence Equity Partners Inc.

Bank of America Corp. is urging a federal court to throw out an unusual lawsuit by its shareholders accusing it of concealing a $10 billion fraud case brought by American International Group Inc., Reuters reported yesterday The bank argued in court papers filed on Tuesday that shareholders should have known the insurer might sue, based on published reports several months earlier. Bank of America also contended that shareholders may not have been harmed by the insurer's lawsuit. AIG sued Bank of America on August 8, 2011, alleging misrepresentations about the quality of more than $28 billion of mortgage-backed securities it bought from the bank and its Countrywide and Merrill Lynch units. Bank of America shares fell 20.3 percent on the day the case was filed.