J.P Morgan and Royal Bank of Scotland are being sued for over $800m (£493m) for the alleged mis-selling of mortgage-backed securities.
US regulator the National Credit Union Administration has filed two suits against the firms alleging violations of securities laws and misrepresentations in the selling of hundreds of securities.
It says the purchase of such bonds caused the failure of five large wholesale credit unions and additional law suits may follow, causing the total amount of damages to run into billions of dollars.
The suits claim that the sellers, issuers and underwriters of the securities in question made numerous “material misrepresentations” in the offering documents, which caused the credit unions to believe the risk of loss associated with the investment was minimal when in fact it was substantial.
The NCUA says the mortgage-backed securities invested in by the credit unions experienced unprecedented declines in value, effectively rendering the firms insolvent.
Debbie Matz, board chairman at the NCUA, says: “The NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions.
“NCUA’s legal actions are based on ongoing investigations of individuals and entities responsible for selling these securities to the failed institutions. The first two actions involve damages in excess of $800m.
“We expect to file additional actions and seek a total amount of damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”