Virginia Reaches $63 Million Pact with 11 Banks in Mortgage Bond Fraud Suit

Reuters | January 22, 2016   A group of 11 banks agreed to pay more than $63 million to settle allegations that they misled the Commonwealth of Virginia and its retirement system about residential mortgage backed-securities, Attorney General Mark R. Herring said on Friday.

The banks, which include two Bank of America Corp units , Morgan Stanley and a unit of the Royal Bank of Scotland Group PLC, defrauded the state's retirement fund by selling it shoddy mortgage bonds in the run-up to the financial crisis, Virginia's attorney general said in a 2014 lawsuit.

None of banks admitted liability in the settlement, Herring said.

The $63 million pact is the largest non-health care-related sum ever obtained in a suit brought under a Virginia law aimed at curbing fraud against the commonwealth's taxpayers, Herring said in a statement.

In the lawsuit, Herring said an analysis showed nearly 40 percent of the mortgages that backed 220 securities purchased by Virginia's retirement fund were fraudulently represented as posing a lower risk of default than they actually did.  Read more here.