Barclays, Royal Bank of Scotland and Goldman Sachs are among the top banks being sued for $2.2bn (£1.3bn) by the trustee for Thornburg Mortgage Inc, the bankrupt US lender.
The court-appointed trustee, Joel Sher, blames the banks for the mortgage lender's failure during the financial crisis. Mr Sher, a top Maryland lawyer, has filed four lawsuits against some of the world's leading banks.
The most extensive lawsuit alleges that a "collusive" arrangement by divisions of JPMorgan, Citigroup, RBS, Credit Suisse and UBS drove Thornburg to bankruptcy.
Mr Sher accuses the five banks of acting together to use a series of unjustified margin calls on their loans to Thornburg to increase their control over the company.
He further alleges they used "market disruption as a justification to initiate a collusive scheme to take control of the debtors and eventually drive them into bankruptcy".
The banks extracted more than $700m of margin and interest payments from Thornburg, then sold their collateral and left the company to file for Chapter 11 bankruptcy during the credit crisis in May 2009, Mr Sher claims.
The lawsuit seeks to recover $2bn for fraudulent conveyances and transfers by the banks, which financed Thornburg's mortgage-backed securities. The trustee claimed the banks eventually drove Thornburg into Chapter 11 bankruptcy.
The company sought protection from creditors with $36.5bn in assets, making it one of the biggest bankruptcies during the financial crisis.
The trustee also sued Barclays for at least $94m for allegedly improperly seizing mortgage bonds from Thornburg in 2007 by undervaluing the securities in a series of margin calls on the company. In addition, Mr Sher sued Goldman Sachs for at least $71m, accusing the investment bank of plotting to seize hundreds of millions of dollars worth of investment-grade mortgage bonds that Thornburg had pledged to it as collateral.
Thornburg, which is now known as TMST Inc, was one of the biggest casualties of the US housing collapse.
The Santa Fe-based lender specialised in making so-called jumbo loans of more than $400,000 to affluent or rich property buyers with good credit, but collapsed following margin calls by its lenders because it was unable to sell assets or raise fresh funds. Margin calls force the borrower to repay loans or put up more collateral as security for the borrowings.
Citi said the lawsuit against it was meritless. Credit Suisse, UBS, Barclays and Goldman declined to comment. JPMorgan in the US did not return a call but told Reuters the lawsuit was meritless.
The final lawsuit claims Countrywide Home Loans, which was acquired by Bank of America, breached representations and warranties on the loans it sold to a Thornburg business. Bank of America declined to comment.
Mr Sher was appointed to run Thornburg after the company's executives were accused of using Thornburg's staff and offices without creditors' approval to start a new company.Reuse content