“Bank of America Corp.’s traders fought off efforts by the firm in 2007 to include risky Alt-A mortgages in a securitization. That wasn’t enough to spare investors from being cheated, according to the U.S.

“The Department of Justice accused the company in a lawsuit yesterday of misleading investors about the quality of loans tied to $850 million in mortgage-backed securities. The complaint chronicles friction among bank staff in 2007 and 2008 as they excluded risky Alt-A loans while leaving in wholesale debts once scorned as “toxic waste” by the firm’s then-chief.

“’None of these loans are suitable for a prime jumbo A-credit securitization,’ one trader wrote in an e-mail, expressing discomfort with adding the low-documentation Alt-A debts to the pool. ‘Like a fat kid in dodgeball, these need to stay on the sidelines,’ another trader wrote, according to the Justice Department’s complaint.

“The exchanges spotlight the mounting tension within Bank of America as it sought to sell mortgages months before credit markets froze and sliding real estate values sparked taxpayer bailouts of the industry. The Justice Department suit and a related U.S. Securities and Exchange Commission claim threaten to hinder Chief Executive Officer Brian T. Moynihan’s efforts to put the 2008 financial crisis behind the firm.”

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Read full Bloomberg article here