Va. attorney general sues major banks for $1.1B
"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 Virginia consumers or Virginia taxpayers, we will catch you and you will be held responsible," Herring said at a news conference outside the Richmond Circuit Court, where the lawsuit was unsealed Tuesday.
Herring accused the banks of offering Virginia Retirement System stable, low-risk securities backed by loans that were at significantly higher risk of default than advertised. The Democratic attorney general said nearly 40 percent of the 785,000 mortgages backing 220 securities purchased by VRS were riskier than the banks had represented. Herring said the banks misrepresented the stability of the underlying mortgages by providing false information about loan-to-value ratios, owner occupancy rates and the percentage of homes with second mortgages.
He said the VRS was forced to sell those securities because of the junk mortgages at a loss of $383 million. Herring is suing for three times the actual damages.
The VRS manages pension plans for public employees and is funded by state employees and taxpayers.
The banks named in the lawsuit include international investment behemoths like Goldman Sachs, Deutsche Bank Securities and Credit Suisse Securities.
Herring said the lawsuit is the largest financial fraud action ever filed by Virginia.
The lawsuit was instigated by the Texas-based firm Integra REC, which Herring said used proprietary software to match individual mortgages to the securities they backed. Herring said the firm filed a whistleblower suit in late January, and he decided to join the lawsuit after months of research by his staff. The firm stands to gain 15 percent to 25 percent of anything the state recovers, Herring said.