Va Settles MBS Lawsuit for Far Less Than Sought

The settlement totals about $63 million, Attorney General Mark Herring announced Friday.

The state had sought as much as $1.15 billion when it announced the suit in 2014.

That would have been triple the damages the Virginia Retirement System claimed, a punitive measure allowed in this sort of fraud-against-taxpayers case. At the time, Herring said it was the largest case brought under those fraud laws. The settlement is “one of the largest of its kind in the nation,” Herring said in a statement Friday.

“At a certain point you make a decision on what’s best for the taxpayers,” Herring spokesman Michael Kelly said of the decision to settle.

The state had argued that VRS lost some $383 million on MBS, which banks pitched as safe investments despite knowing they were on shaky ground in the run-up to the Great Recession.

As people defaulted on their mortgages, the securities lost value quickly, helping to kick off that recession.

The state initially sued 13 banks, but quickly dropped two of them from the case.

The lawsuit was sparked by a financial modeling firm in Texas called Integra REC, which matched specific mortgages to various MBS the state had purchased.

As a whistleblower in this case, Integra will get 25 percent of the settlement, Kelly said.

Other than Integra’s attorneys, the Attorney General’s Office handled this case in house, so there are no other outside attorneys to compensate, Kelly said.

The banks involved admitted no liability in the settlement, and the state dismissed all claims with prejudice, meaning they can’t be filed again.