Pacific Investment Management Co and other investors have sued Citigroup Inc over the bank's alleged failure to properly monitor toxic securities backed by more than $13.8 billion of mortgage loans, resulting in $2.3 billion of losses.
According to a complaint filed Tuesday night in a New York state court in Manhattan, 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.
The investors said Citigroup looked askance at the loans' "abysmal performance" out of fear it might "jeopardize its close business relationships" with loan servicers including Wells Fargo & Co and JPMorgan Chase & Co, 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.
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.
Pimco, a unit of German's Allianz SE, has filed lawsuits against other banks raising similar allegations over other mortgage trusts. A Pimco spokesman declined to comment.
Bond issuers appoint trustees to ensure that payments are funneled to investors, and handle back-office work after securities are sold.
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.
The case is Fixed Income Shares: Series M et al v. Citibank NA, New York State Supreme Court, New York County, No. 653891/2015.
(Reporting by Jonathan Stempel in New York; Additional reporting by Jennifer Ablan; Editing by Alan Crosby)