Ambac Assurance Corp. sued Bank of America Corp. in New York state court, accusing the company of breach of contract over a mortgage-backed securitization ("MBS") sponsored by its Merrill Lynch unit. The complaint, filed Monday in Manhattan, says that First Franklin Financial Corp., 3 Merrill Lynch units and Bank of America "acted in concert" to induce Ambac to issue an insurance policy covering payments due on securities issued in the transaction.  First Franklin was a subprime-mortgage originator acquired in 2006 by Merrill Lynch, which was acquired by Bank of America in 2008. The insurer claimed fraudulent inducement and breach of contract in the suit and seeks unspecified punitive and compensatory damages and an order directing the defendants to repurchase loans. Ambac Assurance was the 2nd-largest bond insurer before the 2008 financial crisis, when defaults on mortgages swamped the company with claims.  It guaranteed about $256 billion of $1.4 trillion in insured municipal debt, according to data compiled by Bloomberg. A U.S. bankruptcy judge in Manhattan on 3/15/12 approved a plan to reorganize the $1.7 billion in debt of NY-based Ambac Financial Group Inc., the bankrupt holding company for Ambac Assurance. The case: Ambac Assurance Corp. v. First Franklin Financial Corp., 651217/2012, New York State Supreme Court, New York County (Manhattan). [Bloomberg, 4/16/12]