Commonwealth of Virginia
Office of the Attorney General
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HERRING BRINGS RECORD $1.15 BILLION LAWSUIT AGAINST BANKS FOR DEFRAUDING VIRGINIA TAXPAYERS
~ Largest suit ever brought under Virginia Fraud Against Taxpayers Act seeks accountability for banks that fraudulently sold mortgage-backed securities to the Virginia Retirement System ~
RICHMOND (September 16, 2014)–Attorney General Mark R. Herring today announced a historic lawsuit against some of the largest commercial banks in the world for fraud committed against Virginia taxpayers during the height of the real estate bubble. A lawsuit unsealed today in Richmond Circuit Court seeks $1.15 billion in damages against thirteen banks that are each accused of fraudulently misleading the Virginia Retirement System (VRS) during the sale of residential mortgage-backed securities (RMBS) to the state retirement fund. The VRS was entitled to accurate information about the underlying mortgages when making decisions on how to invest taxpayer money and contributions by employees. Instead, these large banks purposefully included high-risk mortgages in securities and fraudulently misrepresented the quality of those loans to rating agencies and large investors like VRS. The securities were purchased starting around 2004, and before 2010, Virginia was forced to sell the vast majority of these toxic securities built on junk mortgages and lost $383 million.
In 2013, VRS was funded approximately 66% by Virginia taxpayers and 33% by contributions from state employees, with nearly 600,000 members including 145,000 teachers, 105,000 employees of city and county governments, and 78,000 state employees, as well as state troopers, local law enforcement, and court employees.
This is a rare state-level action brought by an Attorney General to hold banks accountable specifically for damages their fraud and recklessness caused state taxpayers through a public retirement system. It is the largest financial fraud action ever brought by the Commonwealth of Virginia and is the largest case ever brought under the Virginia Fraud Against Taxpayers Act. The Commonwealth will also seek civil penalties against each bank in the amount of $5,500-$11,000 for each violation.
“The message today is clear. It doesn’t matter if you’re a small-time con artist or a multi-billion dollar Wall Street bank. If you try to rip off or defraud Virginia consumers or Virginia taxpayers, you will be caught and you will be held responsible,” said Attorney General Herring.“Every Virginian was harmed by the financial crisis. Homes were lost, retirement accounts were devastated, small businesses saw their credit dry up almost overnight, and state and federal budget cuts hurt vulnerable Virginians. It will take many more years to recover the economic strength and stability we lost, but I will not allow Virginians to be left holding the bag for the reckless, fraudulent business practices of a few big banks who thought they were above the law. These banks lied to Virginia, and taxpayers and state employees lost hundreds of millions of dollars as a result.”
Each bank is alleged to have bundled risky residential mortgages into securities which were then sold to VRS in various quantities. The named banks are:
- Barclays Capital Inc.
- Citigroup Global Markets Inc.
- Countrywide Securities Corporation
- Credit Suisse Securities (USA) LLC
- Deutsche Bank Securities Inc.
- Goldman, Sachs & Co.
- RBS Securities, Inc.
- HSBC Securities (USA) Inc.
- Morgan Stanley & Co. LLC
- UBS Securities LLC
- WAMU Capital Corp.
- J.P. Morgan Securities LLC (and as current owner of Bear, Stearns & Co.)
- Merrill Lynch, Pierce, Fenner & Smith Incorporated(and as current owner of Banc of America Securities LLC)