Pacific Investment Management Co and other investors have sued Citigroup over the bank’s alleged failure to properly monitor “toxic securities” that backed by more than $13.8 billion of mortgage loans, resulting in a total of $2.3 billion in losses.
According to the complaint filed Tuesday in a New York state court in Manhattan, the claim states that Citigroup breached its duties as trustee for the 25 private-label trusts dating from 2004 to 2007 by ignoring “pervasive and systemic deficiencies” in how the underlying loans were underwritten or being serviced.
Investors said Citigroup looked askance at the loans’ “abysmal performance” out of fear it might “jeopardize its close business relationships” with a variety of loan servicers including Wells Fargo and JPMorgan Chase, or prompt them to retaliate over its own problem loans.
Some loans backing the 25 trusts came from issuers including the now-defunct American Home Mortgage and Washington Mutual. The lawsuit seeks class-action status and unspecified damages.
It should also be noted that Citigroup spokeswoman Danielle Romero-Apsilos declined to comment. TIAA-CREF, and affiliates of Prudential Financial Inc and Aegon NV’s Transamerica are among the other plaintiffs.
Trustees have in recent years become a target for investors who lost money on badly underwritten mortgages, and believe the trustees shirked their duties to force lenders and bond issuers to buy those loans back.