JPMorgan Chase and Royal Bank of Scotland were sued for more than $800 million by the nation’s credit-union watchdog for peddling allegedly toxic mortgage securities to five failed credit unions during the height of the financial crisis.
The National Credit Union Administration slapped the banks with a pair of lawsuits in Kansas City federal court yesterday after talks with the banks to arrive at an out-of-court settlement collapsed.
Sources said the suits are the first in a flurry the federal agency intends to bring against other banks, including Goldman Sachs, Bank of America and Citigroup, in a bid to recover losses on some $50 billion in junk mortgage securities.
According to court papers, the NCUA was forced to place five credit unions, including US Central, in Lenexa, Kan., Western Corporate in San Dimas, Calif., and Southwest Corporate in Plano, Texas, into a form of bankruptcy known as conservatorship after they were overwhelmed by losses on mortgage debt sold to them by JPMorgan, led by Jamie Dimon, and RBS.
The NCUA claims the banks provided marketing materials that misrepresented the risks associated with investing in the securities bearing triple-A ratings, which nonetheless imploded as the housing market collapsed.
“These offering documents contained untrue statements of material fact or omitted to state material facts,” NCUA’s 186-page suit against JPMorgan claims.
The agency filed a similar 182-page misrepresentation claim against RBS.
“Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,” NCUA Board Chairman Debbie Matz said in a statement.
An RBS spokesman declined to comment, as did a spokeswoman for JPMorgan.
The NCUA’s hardball legal move comes as Wall Street banks were already fretting over the possibility of shelling out billions as part of a broader settlement over their role in the mortgage crisis and the subsequent foreclosure fiasco.
Washington has been haggling over a deal that would see some of big financial firms, including BofA, JPMorgan, Citigroup and Wells Fargo, hand over billions to settle claims that their mortgage-servicing arms improperly foreclosed on homeowners.
The NCUA’s legal filing follows a $1 billion suit by the US government against Deutsche Bank and suggests the government will take a much harder line with banks over the mortgage mess. mark.decambre@nypost.com