US Preparing Civil Charges Against Citigroup and Merrill Lynch Over Mortgage Securities

The US Department of Justice is getting ready to file civil fraud charges against Citigroup and Merrill Lynch over the sale of risky mortgage-backed securities ahead of the 2008 financial crisis.

Civil investigators have gathered evidence that supposedly shows that investors lost tens of billions of dollars after purchasing flawed securities that Citigroup had promoted as safe, reported Reuters.

Another probe into the mortgage securities marketed by Merrill Lynch, which Bank of America (BofA) acquired at the height of the crisis in 2008, was also nearing completion.

Meanwhile, investigations against Royal Bank of Scotland (RBS) had made progress and the firm could face charges in the first half of 2014, according to the news agency.

The Justice Department also recently received further evidence, including internal communication records, regarding the mortgage activities of Swiss banking major Credit Suisse.

The probes could lead to out-of-court settlements.

The Justice Department has not set a timeframe for the upcoming lawsuits. US Attorney General Eric Holder said earlier in the month that the department could file more mortgage-related cases in early 2014.

Merrill Lynch could be dragged to court ahead of Citigroup. Lawyers at the US Attorney's offices in Brooklyn and in Colorado, investigating the latter, want the high-profile case to be filed in their district. A decision on the same is likely this week.

Pursued by Reuters, the parties involved refused to comment.

Costly Settlements

Earlier in the month, BofA stumped up $131m in settlement payments after the US SEC found that Merrill Lynch misled investors about its mortgage securities.

In November, JPMorgan agreed to pay $4.5bn to 21 institutional investors in 330 residential mortgage-backed securities (RMBS) trusts issued by JPM and Bear Stearns, which it acquired during the financial crisis.

In October, JPM agreed to pay one of the largest financial penalties in history after sealing a tentative $13bn deal with the US Justice Department to put an end to a raft of government mortgage product related probes.

The investigations sprung from a government task force the Obama administration set up in early 2012 to probe the sale of inferior home loans repackaged for investors.

Investment banking giant Goldman Sachs has disclosed it is under investigation and that forthcoming claims could trigger a "significant increase" in its liabilities.

The US banking industry, battling a range of mortgage-related lawsuits, has argued that many of the alleged investor losses could be ascribed to the 2008 crisis. The industry has said that it should not be held liable for selling a variety of mortgage securities that ultimately went bad.