SALEM, Ore. (Legal Newsline) - Oregon Attorney General John Kroger announced on Monday that his office has filed a lawsuit against a former financial giant that allegedly misreported values of mortgage-backed securities.
Bear Stearns & Co. and its subsidiary, Structured Asset Mortgage Investments II Inc., allegedly misrepresented these mortgage-backed securities, causing investors, including the Oregon Public Employees Retirement Fund, to lose millions.
Kroger was joined by Oregon Treasurer Ted Wheeler in bringing the suit, which seeks to recover losses that were directly attributable to misleading filings in connection with the company's actions, including the $17 million lost by OPERF.
"Oregon has zero tolerance for companies that deceive investors," Kroger said.
The suit alleges that Bear Stearns' actions contributed to the economic downturn and caused profound financial harm to Oregon families.
"We believe that these junk investments were intentionally mislabeled and all Oregonians are still reeling from the economic fallout," Wheeler said. "If you hurt Oregonians financially, we are coming after you."
Oregon joined an existing class action lawsuit, which is pending in U.S. District Court in the Southern District of New York. Other plaintiffs include public employees' retirement funds in Iowa and Mississippi, the New Jersey Carpenters' Health Fund, the Boilermaker Blacksmith National Pension Trust, the City of Fort Lauderdale Police & Fire Retirement System, and the Police and Fire Retirement System of the city of Detroit.
The lawsuit is based on the sale of $17.5 billion in mortgage-backed certificates from the years 2006 and 2007. Allegedly, those securities were sold as high-quality "investment grade" securities, but were really part of a pool of 47,148 real estate loans that were largely made up of risky subprime and so-called "Alt-A" mortgages.
The value of the investments has collapsed since the securities were sold and the ratings on 99 percent of them were downgraded. Of the $17.5 billion in initial securities, rating firms downgraded $17 billion to what is considered "below investment grade."
Originally, $16.2 billion of the initial securities were given the highest AAA rating, but 95 percent of those were eventually downgraded to junk bond status.
During the years in question, the Oregon Public Employee Retirement Fund purchased a total of 57,755,000 of the certificates in five different offerings, at a price of $1 apiece. The lawsuit says that the values of many of those they bought fell by more than half.
This lawsuit is the second Oregon has filed in 2010 in connection with losses from allegedly misreported values of mortgage-backed securities. In July, the State Treasury authorized a lawsuit against Countrywide Financial Corp.