Banks Sued for Billions

The parent of Freddie Mac and Fannie Mae, the Federal Housing Finance Agency, on September 2, 2011, sued against a number of banks for packaging and selling mortgage-backed securities with misleading and deceptive information that had eventually led to the financial meltdown in 2008. The financial meltdown eventually caused a massive government bailout, including a $153 billion rescue of Fannie and Freddie and would eventually climb to $363 billion through 2013. The suit has not claimed a specific dollar amount, but going by a similar July 2011 lawsuit filed by the agency against the UBS, government tried to recoup 20% ($900 million) of the $4.5 billion in losses in mortgage securities. The following banks have been sued: Bank of America (sold $50 billion mortgage securities), JP Morgan Chase ($33 billion), Morgan Stanley (more than $10 billion), Deutsche Bank ($14.2 billion), Royal Bank of Scotland ($30.4 billion), Credit Suisse ($14.1 billion), Citigroup and Barclays.

In a separate case, Citigroup on October 19, 2011 settled with Securities and Exchange Commission for $285 million to set aside the charges that the bank had misled investors in a $1 billion derivatives deal tied to the US housing market, and then bet against the investors. The SEC also brought a civil action suit against a Citigroup employee, Brian Stoker, 40, who had structured the transaction, and it had brought and settled against the asset management unit of Credit Suisse and an employee of Credit Suisse, Samir H. Bhatt, 37. The Citigroup didn't say to the investors whom it had sold the so-called Collateralized Debt Obligation that it had selected the assets or it was betting against them. Credit Suisse worked as a collateral manager for the CDO transaction. The CDO sold by Citigroup was known as Class V Funding III. The penalty slapped on Citigroup--$285 million--is the largest penalty since Goldman Sachs & Co. settled similar charges with the SEC by agreeing to pay $550 million last year (2010). In June 2011, JPMorgan Chase & Co. agreed to pay $153.6 million to settle similar charges. The Goldman case had spawned from the misleading information given to investors regarding who was choosing the assets. Goldman Sachs told investors that an independent manager was choosing the assets while John Paulson, a hedge fund manager, chose the assets which he had thought would go down in value.