NEW YORK — A group of bond-holders on Tuesday challenged Bank of America's record $8.5 billion settlement for losses on mortgage-backed securities, clouding its efforts to move past the subprime mortgage mess.

The proposed settlement was marred by "serious conflicts of interest" and "would extinguish the legal rights of hundreds of other investors," Walnut Place, the group of disgruntled bond-holders, alleged in a court filing.

"Walnut Place has serious concerns about the secret, non-adversarial, and conflicted way in which the proposed settlement was negotiated and about the fairness of the terms of the proposed settlement," the group said.

The challenge threatens to scuttle a deal that Bank of America had worked out with 22 large investment groups in an effort to close the door on its disastrous 2008 acquisition of mortgage lender Countrywide Financial.

Before the financial crisis, Countrywide was a leading issuer of subprime mortgages, many of which were bundled into complex mortgage-backed securities that were sold to investors ignorant of the underlying risks.

When the US housing market took a downturn, the market for such securities collapsed, triggering the global financial crisis of 2008.

Bank of America -- the largest US bank in terms of deposits -- lost billions of dollars from its involvement in home finance, and the settlement announced last week was intended to help the bank move beyond the subprime mess.

The 22 groups which signed on to the settlement included giant financial institutions such as Goldman Sachs, BlackRock, PIMCO, Metropolitan Life, ING Bank and the New York branch of the US Federal Reserve.

Walnut Place said it consisted of 11 entities which held securities that had originated from Countrywide, but otherwise gave few details about itself in its challenge, which was filed in a New York court.