Institutional investors including BlackRock Inc. and Allianz SE's Pimco on Wednesday sued six of the largest bond trustees, accusing them of failing to properly oversee more than $2 trillion in mortgage-backed securities issued in the run-up to the 2008 financial crisis.
The lawsuits, filed in New York state court, claim the trustees breached their duties to investors by failing to force lenders and sponsors of the securities to repurchase defective loans, the suits claim.
The investors are seeking damages for losses that exceed $250 billion and relate to over 2,200 residential mortgage-backed securities trusts issued between 2004 and 2008, according to a person familiar with the cases.
The trustees that were sued include units of U.S. Bank, Citibank, Deutsche Bank, Wells Fargo & Co., HSBC, and Bank of New York Mellon. Representatives for the banks declined comment or did not immediately respond to requests for comment.
The lawsuits come after a New York appeals court ruling in December that determined the six-year statute of limitations to bring breach-of-contract cases against the issuers of mortgage securities began when the transactions were executed. The ruling means that for many cases it is too late to sue.
The lawsuits claim the trustees disregarded their duties to protect investors despite knowing that the trusts held a large number of loans that did not meet their contractual obligations.
The trustees were aware of an "industrywide abandonment of underwriting guidelines" for the loans and "pervasive and systemic deficiencies infecting the trusts' collateral," as the complaint against Citibank says.
Banks have paid billions of dollars in lawsuits and settlements since being accused of packaging shoddy mortgages into securities that helped lead to the financial crisis.
The bonds at issue here have not been included in similar cases including an $8.5 billion accord between investors and Bank of America Corp and a $4.5 billion deal between investors and JPMorgan Chase & Co over mortgage-backed securities, the person familiar with the lawsuits said.
In addition to BlackRock and Pimco, the lawsuits were filed on behalf of Charles Schwab Co, DZ Bank AG and other institutional investors.
The cases were filed on behalf of the investors by Bernstein Litowitz Berger & Grossmann.
The cases are BlackRock Allocation Target Shares, et al v Bank of New York Mellon, Blackrock Balanced Capital Portfolio, et al, v Deutsche Bank National Trust Company, BlackRock Allocation Target Shares v. U.S. Bank National Association; BlackRock Balanced Capital Portfolio, et al v Citibank N.A.; BlackRock Core Active Libor Fund B v HSBC Bank USA; and BlackRock Allocation Target Shares et al, v Wells Fargo Bank, New York State Supreme Court, New York County.
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