Barclays, HSBC and bailed-out Royal Bank of Scotland are among 13 banks facing fraud allegations and a claim for $1.15bn (£700m) in damages in the US state of Virginia over the sale of mortgage bonds during the financial crisis.
The Virginia attorney general, Mark Herring, made the accusations, which relate to the sale of bonds to the state's retirement fund from 2004 to 2010.
He alleged the 13 banks packaged up risky home loans into the bonds or securities, which in turn were sold to the Virginia Retirement System as, largely, top-notch AAA-rated bonds. The retirement fund has 600,000 members including teachers, employees from the city and county governments, state troopers, and court employees.
"The message today is clear. It doesn't matter if you're a small-time con artist or a multibillion-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 Herring, who is bringing the claim after evidence collated by a whistleblowing analytical firm, IntegraREC.
The case filed in the Richmond circuit court shows the actions of banks in the runup to the financial crisis continue to come under scrutiny by the authorities, potentially undermining attempts by banks to improve reputations that have been knocked by repeated allegations about their behaviour.
Last week HSBC became the latest bank to settle allegations that it made false representations in selling mortgage bonds to the giant US mortgage companies Fannie Mae and Freddie Mac. HSBC paid $550m to the US's Federal Housing Finance Agency, which has filed 18 lawsuits.
Virginia alleges the banks fraudulently misrepresented the quality of the mortgages they packaged up and sold to investors such as the Virginia Retirement System. According to the allegations, 40% of the mortgages sold on to the retirement fund had a higher risk of default than was disclosed at the time they were bought, leading to $383m of losses.
The law allows claims for treble the estimated losses and the 317-page lawsuit also names arms of Citigroup, Countrywide, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, UBS and Washington Mutual.
"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," said Herring.
The lawsuit sets out three ways in which the banks mispresented the quality of the mortgages being sold: the value of the loan compared with the value of the home, the owner occupancy rate and percentage of homes with a second mortgage.
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