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 Civil investigators have compiled evidence that allegedly shows that
investors lost tens of billions of dollars after purchasing
securities Citigroup had marketed as safe even though the bank had
reason to believe otherwise, one person said.
An investigation into the mortgage securities marketed by Merrill
Lynch, which Bank of America agreed to acquire at the height of the
crisis in 2008, is also close to completion, two other people said.
Probes against Royal Bank of Scotland and Credit Suisse are also
underway and progressing, according to another two people familiar
with those cases.
Representatives for all four banks declined to comment.
The U.S. banking industry, which faces a range of mortgage-related
lawsuits, has contended that many of the alleged investor losses can
be attributed to the financial crisis, and that they should not be
held liable for marketing a variety of mortgage securities that
ultimately soured.
The Justice Department has not determined the exact timing of
upcoming lawsuits, the sources said, although U.S. Attorney General
Eric Holder told Reuters earlier this month that the department
planned to bring more mortgage-related cases in early 2014, while
declining to name which companies were targeted.
The probes could also lead to settlements instead of lawsuits.
The cases stem from a government task force the Obama administration
created in early 2012 to probe the sale of shoddy home loans
repackaged for investors.
Last month, JPMorgan Chase entered a $13 billion settlement with the
Justice Department and other agencies, to resolve charges that the
bank overstated the quality of mortgages it was selling to
investors.
The Department of Justice trumpeted that settlement as a big step
toward holding banks accountable for their behavior before the
financial crisis, and authorities have dedicated dozens of
investigators to bringing similar lawsuits against other major Wall
Street firms.
A representative from the Justice Department declined to comment.
Goldman Sachs has also disclosed it is under investigation and that
future claims from the task force could result in a "significant
increase" in the company's liabilities.
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While the investigation against Citigroup is the furthest along,
disagreements about where that case might be filed could potentially
push Merrill Lynch ahead, said one person familiar with the matter.
Lawyers at the U.S. Attorney's offices in Brooklyn and in Colorado
are both investigating Citigroup, and both want the high-profile
case to be filed in their district, this person said. Officials are
expected to meet this week to try to resolve the dispute, the source
said.
Representatives from the U.S. Attorney's offices in Colorado and
Brooklyn declined comment. A spokeswoman for the U.S. Attorney's
office in New Jersey, which is investigating Merrill Lynch, also
declined comment.
Royal Bank of Scotland is also under investigation and could face
charges as early as the first half of 2014, sources said.
The Justice Department has also recently received further evidence,
including internal communication records, regarding the mortgage
activities of Swiss bank Credit Suisse, according to one person
familiar with that case.
The source said the evidence shows Credit Suisse's mortgage lending
arm ignored red flags about its processes for signing off on loans
and pushed to increase the output of them for the bank to bundle
into securities. It is unclear how advanced that overall
investigation is.
(Reporting by Aruna Viswanatha in
Washington and Emily Flitter in New York; additional reporting by
David Ingram and David Henry; editing by Karey Van Hall and Tim
Dobbyn)
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