(Adds details of lawsuit, no comment from banks)
By Gary Robertson and Aruna Viswanatha
RICHMOND, Va./WASHINGTON, Sept 16 (Reuters) - The state ofVirginia said on Tuesday that it sued units of Citigroup Inc, Deutsche Bank AG and 11 other banks, accusingthem of defrauding the state's retirement fund by selling itshoddy mortgage bonds in the run-up to the recent financialcrisis.
The lawsuit seeks $1.15 billion in damages from the banks,who allegedly misled the Virginia Retirement System about thequality of loans in investments purchased between 2004 and 2010.
The state's attorney general said an analysis showed nearly40 percent of the mortgages that backed 220 securities the fundpurchased were fraudulently represented as posing a lower riskof default than they actually did.
Attorney General Mark Herring said the fund lost $383million when it was forced to sell the securities.
The other banks named in the lawsuit include units of Bankof America Corp, Credit Suisse AG, GoldmanSachs Group Inc, HSBC Holdings plc, MorganStanley, and JPMorgan Chase & Co. Representativesof the banks either declined comment or did not immediatelyrespond to a request for comment.
The case follows many other states' resolution of similarcases over losses that state funds suffered from pools ofmortgages considered to be at the center of the 2008 financialcrisis. Some of the cases were wrapped up through jointfederal-state settlements with several financial institutionsincluding Bank of America and Citigroup.
At a press conference announcing the lawsuit, Herring said awhistleblower, which he identified as financial modeling firmIntegra REC, recently brought the allegations to his office.Under a law about providing evidence of defrauding Virginiataxpayers, such a whistleblower could earn between 15 to 25percent of any recovered funds. A representative of Integra RECdeclined to comment on the case.
The lawsuit was unsealed Tuesday in Richmond Circuit Court.
"The message today is clear. If you try to rip off ordefraud Virginia consumers or Virginia taxpayers, you will becaught and you will be held responsible," Herring said at thepress conference, which was held at the courthouse. The banks have 21 days to respond to the lawsuit. "We are in this for the long haul," Herring said. (Reporting by Gary Robertson in Richond and Aruna Viswanatha inWashington, with additional reporting by Lauren Tara LaCapra inNew York; Editing by Chizu Nomiyama)
Barclays (BARC)
HSBC Holdings (HSBA)
