Bank of America's proposed $8.5 billion settlement with 22 institutional investors over soured mortgages took a turn for the worse as the states of New York and Delaware won the right to intervene in the settlement agreement. New York attorney-general Eric Schneiderman and Delaware’s Beau Biden say the deal is inadequate to investors and that Bank of New York Mellon, the investors' trustee , broke state laws.  Mr Schneiderman has asked the presiding judge to reject it. Back in June 2011, ... BofA struck the deal with BNY Mellon, which represented aggrieved investors - which included the Federal Reserve Bank of New York and Pimco advisers.  As negotiated, Bank of America would repurchase home loans bundled into 530 securities with an original loan balance of $424bn, and pay out $8.5 billion. From the get-go, the deal has come under criticism from a variety of investors and government agencies, including insurer AIG and the FDIC which have asked either for the deal to be rejected or for more information so they can evaluate its merits. Ruling by U.S. Judge William Pauley. The judge granted the request of Mr Schneiderman and Mr Biden to intervene in the case, saying that their actions “will protect the interests of absent investors.”  In his 11/18 order, Judge Pauley wrote:  “The action concerns far more than the financial interests of a few sophisticated investors.” Mr Schneiderman has said that BNY Mellon “knowingly, repeatedly and consistently” misled investors, by engaging in “repeated fraud and illegality.”  The two state attorneys general vow to investigate wrongdoing on Wall Street.  Together, they now have the standing to request that the judge either reject the accord or to push BofA to strike a more generous settlement for investors. As BofA Efforts are Complicated, Share Price Keeps Dropping . The ruling does not bode well for the Bank of America, because it complicates BofA's efforts to limit its exposure to alleged faulty mortgage practices. Investors have pushed BofA shares down about 60% to $5.37 as of the close on Tuesday - its lowest level in nearly 3 years.  No one really knows what BofA's final obligation will be - and the constantly fluctuating estimates have spooked investors. What Ruling Means for Both State Legal Officers. Each has pending investigations into allegedly faulty mortgage securities.  And, because they each have standing in the case, Schneiderman and Biden will now have access to files and correspondence BNY Mellon and BofA produce as part of the discovery process. The state of New York has argued that BNY Mellon and BofA in effect colluded to strike a settlement, and that BNY breached its obligation to investors. A spokesperson for BNY Mellon said the bank didn't oppose efforts by investors to object to the accord.  “However, we continue to respectfully believe that those interests are adequately represented without the intervention of state attorneys-general,” Mr Heine said.   [Financial Times, 11/22/11]