Thornburg Mortgage Bankruptcy Trustee Sues Banks For $2.2 Billion
Of DOW JONES DAILY BANKRUPTCY REVIEW
The court-appointed trustee overseeing the liquidation of Thornburg Mortgage Inc. is suing some of Wall Street's biggest banks -- including J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) -- for $2.2 billion, alleging they engaged in series of "collusive" and "predatory" schemes that eventually drove Thornburg into bankruptcy.
Joel I. Sher, the bankruptcy trustee overseeing the liquidation of Thornburg, once the nation's second-largest independent mortgage company, filed four suits last week in U.S. Bankruptcy Court in Baltimore against some of the biggest players in Wall Street's mortgage-finance assembly line. In addition to Citi, Goldman and J.P. Morgan, the trustee also sued Bank of America (BAC) and Countrywide Home Loans as well as subsidiaries of Barclays PLC (BCS), Credit Suisse Group (CS), Royal Bank of Scotland Group PLC (RBS) and UBS AG (UBS).
Representatives for the banks couldn't immediately comment on the allegations.
The suits allege that the company was undone by a series of unlawful acts taken by investment banks during the mortgage crisis in 2007 and 2008.
In the largest suit, Sher sued subsidiaries of J.P. Morgan Chase, Citi, Credit Suisse, Royal Bank of Scotland, and UBS for nearly $2 billion over what he calls "a collusive scheme" to take control of Thornburg and drive it into bankruptcy.
Sher, an attorney at Baltimore law firm Shapiro, Sher Guinot & Sandler, is also suing Goldman Sachs, claiming the investment bank schemed to "confiscate hundreds of millions of dollars of stable, investment-grade mortgage-backed securities" that Thornburg had pledged to Goldman as collateral. The suit alleges breach of contract and seeks judgments totaling at least $71 million.
In a similar suit, Sher claims Barclays Capital improperly seized mortgage-backed securities from Thornburg in August 2007.
A fourth suit claims Countrywide misrepresented the nature of hundreds of home loans securitized and sold to Thornburg in 2006. The suit also alleges that Bank of America, now Countrywide's parent, has "engaged in an elaborate corporate shell game" intended to shed Countrywide's liabilities. Sher is asking the bankruptcy judge overseeing the case to force the bank to repurchase the loans.
Sher was named the Chapter 11 trustee of Thornburg, now named TMST Inc., in 2009 after it was discovered that former managers had used the lender's employees and assets to launch a new company.
Thornburg, based in Santa Fe, N.M., filed for Chapter 11 protection in May 2009, listing assets of $24.4 billion and debts of $24.7 billion. The bulk of those assets -- some $19.7 billion -- were held in securitization trusts. Sher is winding down the company and selling off its assets for the benefit of creditors.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)
-By Patrick Fitzgerald; Dow Jones Daily Bankruptcy Review; 202-862-3544; patrick.fitzgerald@dowjones.com
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