As I've read elsewhere, private companies have less restraint than the government when presenting evidence to a jury, which means the fur could really fly if this goes to trial. Just a guess that the banks will settle, since the cost and length of trial may exceed the cost of any settlement. Not to mention damage to bank reputations if corruption, etc. is revealed. Who knows.

JPMorgan, UBS and Bank of America have already been sued by Schwab over this, as stated in the last paragraph. Could be other institutions will pile on now that big-gun Schwab is involved.

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November 5, 2010, 10:22 A.M. ET

Charles Schwab Sues Big Banks Over Underwriting Of RMBS

By Brett Philbin

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Charles Schwab Corp. (SCHW) is suing units of 11 big banks that sold or issued certificates in securitization trusts backed by residential mortgage loans to its bank.

The banks named in the complaint filed on July 15 include BNP Paribas SA (BNPQY, BNP.FR), Bank of America Corp. (BAC), Citigroup Inc. (C), Credit Suisse Group (CS, CSGN.VX), Deutsche Bank AG (DB, DBK.XE), Goldman Sachs Group Inc. (GS), Wells Fargo & Co. (WFC), UBS AG (UBS, UBSN.VX), HSBC Holdings PLC (HBC, HSBA.LN), Royal Bank of Scotland Group PLC (RBS, RBS.LN), and Morgan Stanley (MS).

In a complaint filed with the Superior Court of California, County of San Francisco, Schwab said it paid the defendants $1.38 billion for 37 certificates in 36 securitization trusts backed by residential mortgage loans.

Schwab alleges the defendants made "numerous statements to Schwab about the certificates and the credit quality of the mortgage loans that backed them" and "many of those statements were untrue as to material facts."

The San Francisco discount brokerage said defendants "omitted important information, about such material facts as the loan-to-value ratios of the mortgage loans, the number of borrowers who did not live in the houses that secured their loans and the extent to which the entities that made the loans departed from their own standards in doing so."

The complaint says that because the certificates are "securities" under two California securities acts, Schwab believes it is entitled to rescind the purchase of the certificates or be paid damages for losses on the certificates.

A Charles Schwab spokesman didn't immediately respond to a request for comment.

In a previous complaint filed on June 29, Schwab sued units of Bank of America, UBS, and J.P. Morgan Chase & Co. (JPM) over the sale of mortgage-backed securities to the company's bank, alleging the firms made false statements or omitted facts about the credit quality of loans that backed the investments. Two units of Wells Fargo were also named in those documents, though the bank wasn't one of the securities dealers that sold certificates to Schwab. Rather, Wells Fargo is considered an issuer of the certificate that UBS sold to Schwab.

-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com