Other States
An analysis like the one Virginia is applying can be done by other states and could lead more of them to file claims against banks, said Isaac Gradman, a lawyer at Perry Johnson Anderson Miller & Moskowitz LLP in Santa Rosa, California, who consults on mortgage litigation.
“I would assume other states will see this filing and say ‘Why can’t we do the same thing?,’” Gradman said. One key factor is whether the statutes of limitations in individual states will allow them to reach back far enough to make a meaningful case, Gradman said.
Michael Kelly, a spokesman for Herring, said he didn’t know if Integra REC had uncovered evidence for similar suits in other states.
Jason Collins, of Reid Collins & Tsai, a lawyer for Integra REC, didn’t immediately respond to a phone call requesting comment on the suit.
Retirement System
The Virginia suit focuses on the retirement system’s purchase of 220 packages of securities.
An analysis showed that almost 40 percent of the 785,000 mortgages backing those securities “were fraudulently misrepresented in a way that made them a significantly higher risk for default,” according to Herring’s statement.
Distortions included understating the number of loans with high loan-to-value ratios, and misrepresenting owner occupancy rates and the percentage of homes with second mortgages, Herring said.
Civil Penalties
The losses to the retirement system are estimated at $383 million and the state can seek triple damages. Virginia is also asking for civil penalties of $5,500 to $11,000 per violation.
If the suit is successful, Integra is eligible for 15 percent to 25 percent of any recovery under Virginia law, according to Kelly.
The retirement system has almost 600,000 members, including 145,000 teachers and 105,000 city and county government employees, according to the attorney general.
The case is Commonwealth of Virginia v. Barclays Capital, CL14-399, Circuit Court for the City of Richmond (Virginia).