The state of Virginia has arrived at a $63M settlement with 11 banks to resolve claims that they bilked the state’s retirement system by purportedly misrepresenting the quality of residential mortgage-backed securities in the run up to the 2008 financial crisis. The resolution settles all claims against the financial firms accused of causing financial harm to the Virginia Retirement system and its taxpayers and pensioners.
The banks involved will pay the following amounts respectively to settle, including:
· UBS Securities for $850K
· Bank of America’s Merrill Lynch, Pierce, Fenner & Smith, Inc. and Countrywide Securities Corp. (BAC) for $19.5M
· Credit Suisse Securities (CS) for $1.2M
· RBS Securities (RBS) for $10M
· HSBC Securities (HSBC) For $2.5M
· Barclays Capital (BARC) for $9M
· Goldman Sachs & Co. (GS) for $2.9M
· Morgan Stanley & Co. (MS) for $6.9M
· Citigroup Global Markets (C) for $4.8M
· Deutsche Bank Securities (DB) for $5.6M
The state lost $383M over RMBS it purchased from 2004 to before 2010 and it had to sell most of these securities, which were toxic and constructed on junk mortgages. The settlement is the largest non-healthcare related financial recovery in a case involving Virginia Fraud Against Taxpayers Act-related violations. However, according to the state’s Attorney General Mark Herring, even though the firm is settling it is not denying or admitting liability.
Residential Mortgage-Backed Securities
This kind of mortgage-backed debt obligation has a cash flow that stems from home-equity loans, mortgages, subprime mortgages, and other residential debt. An RMBS security typically consists of mortgage loan pools created by financial institutions. Cash that flows from the pooled mortgages are packaged into tranches and classes that issue securities, which investors can purchase.
Investing in RMBS may expose investors to credit and prepayment risks. These securities are considered one of the main instigators of the financial crisis in 2007 and 2008 because residential mortgaged-backed securities investors and others were exposed to the rise in declining home prices, foreclosures, and dropping interest rates.
At The SSEK Partners Group, our RMBS fraud lawyers are here to help investors recoup their losses. Contact us today.
Virginia reaches $63 million settlement with 11 banks for RMBS fraud, HousingWire, January 22, 2016