As the Dow got hammered Monday, down almost three percent, or 330.17 points, index component Bank of America (NYSE: BAC) was taking the worst beating of all. One of the Dow's 30 tracked stocks in the Dow Jones Industrial Average, Bank of America's stock traded down 16 percent by mid-afternoon.

Financial stocks suffered in the downgrade drama that saw U.S. and global markets plummet, but investors also pulled away from the bank stock over news that American International Group Inc. (AIG) is suing Bank of America in a bid to recoup more than $10 billion in losses on mortgage-backed securities.

AIG said Monday it has sued Bank of America for more than $10 billion, accusing the bank of cheating it by selling residential mortgage-backed securities that were overvalued.

Bank of America has denied the allegations, saying AIG "recklessly" chased investments with high returns, and was a big and sophisticated enough business to know the risks involved with its investments.

AIG is accusing Bank of America and two companies later bought by Bank of America, including Countrywide and Merrill Lynch, of selling the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing bubble.

AIG claims it looked at more than 260,000 of the mortgages it purchased, finding that the bank's "stated metrics" for 40 percent of those securities were false.

A Bank of America spokesman blamed AIG for the problem, in an interview with USA Today.

"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets," said spokesman Lawrence Grayson. "It is the very definition of an informed, structured investor, with losses solely attributable to its own excesses and errors."

An AIG spokesman countered, saying it is "disappointing" that Bank of America continues to blame others for its own misconduct.

Bank of America shares were down $1.30 per share on Monday, or 16.35 percent, to $6.84, near a 52-week low. The stock led all of the Dow's 30 in decline.

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