U.S. Bancorp was sued by an Oklahoma police pension fund over allegations investors in mortgage bonds were hurt by the bank failing to ensure that securities were backed by loans.
U.S. Bancorp knew mortgage loans underlying the bonds weren’t properly transferred to trusts and caused investors to suffer millions of dollars in losses, Oklahoma Police Pension and Retirement System said in a complaint filed yesterday in federal court in Manhattan.
“U.S. Bank’s violations of its duties have resulted in certificate holders unnecessarily suffering millions of dollars of losses because they were dependent on a faithless trustee to protect their interests,” the fund said in its complaint.
The mortgages loans were pooled and securitized by Bear Stearns, the investment bank that was acquired by JPMorgan Chase & Co. (JPM) As the trustee for the two trusts at issue in the lawsuit, U.S. Bancorp was required to take steps to ensure the securities sold to investors were properly backed by mortgages, the pension fund said.
The bank, for example, was required to take physical possession of documents in mortgage-loan files and review the files for any defects. Transfer of the proper documentation was needed for the trusts to take ownership of the loans, the Oklahoma fund said.
U.S. Bancorp’s failures meant securities purchased by investors “were not, in fact, legally collateralized by mortgage loans,” according to the court filing. The pension fund filed the complaint as a class-action, or group, lawsuit, and seeks to represent other investors.
Tom Joyce, a spokesman for Minneapolis-based U.S. Bancorp, said in an e-mail that the bank hadn’t received the complaint.
To contact the reporters on this story: David McLaughlin in New York at email@example.com