This was always implicit, but Attorneys General Roy Cooper (D-NC) and Lisa Madigan (D-IL) have gone public, saying that they plan to sue top banks and their mortgage servicers over fraudulent conduct if settlement talks break down. The threat of litigation dragging on years, and the reputational risk to the financial institutions involved, is part of the strategy for the AGs to actually get to a settlement.

“If we don’t get an agreement, we’re prepared to go to court,” Cooper told homeowner advocates at a meeting of state attorneys general in Chicago yesterday.

Cooper and Madigan are members of the executive committee of attorneys general which, along with officials from federal agencies, is negotiating with the banks. State and federal officials are seeking to set standards for the way the banks service loans and conduct foreclosures. They also want monetary relief for homeowners [...]

Iowa Attorney General Tom Miller, who is leading negotiations for the states, told the group of homeowner advocates yesterday that officials are making progress in the talks. He declined to provide any details.

“We don’t want a settlement around the margins, around the edges,” Miller said. “The settlement has to be fundamental, has to make some changes that are worth it, that are constructive.”

Miller has to say that, even though his precious settlement is in tatters. When asked point-blank if there will be a settlement, Madigan said she was “not positive.” This is why she’s already making arrangements by subpoenaing documents from leading banks. I mean, Georgia AG Sam Olens (R) estimated that around 20 of his Republican colleagues oppose principal writedowns, and would only enter a settlement if they get to pick and choose how to use the money. I’m not sure where else the money would go (counseling? mediation?), and that result may cause multiple AGs on the Democratic side to bolt.

But while threatening to sue is a decent enough idea – carrying it out would be better – these are not necessarily the lawsuits that keep the banks up at night. No, they’re far more worried about private actions, mainly from institutional investors, that would force them to take back hundreds of billions in improper securities.

Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) (http://www.rgrdlaw.com/cases/deutschebank/) today announced that a class action has been commenced on behalf of an institutional investor in the United States District Court for the Southern District of New York on behalf of purchasers of Deutsche Bank AG (“Deutsche Bank”) (NYSE:DB) ordinary shares during the period between January 3, 2007 and January 16, 2009 (the “Class Period”) [...]

The complaint charges Deutsche Bank and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Deutsche Bank is a global investment bank.

The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results and concealed the Company’s failure to write down impaired securities containing mortgage-related debt. As a result of defendants’ false statements, Deutsche Bank shares traded at artificially inflated prices during the Class Period, reaching a high of $159.59 per share in May 2007. Later, Deutsche Bank’s shares declined as it reported billions of dollars in losses, many of which were directly or indirectly related to mortgage-backed securities. Recently, the U.S. Department of Justice sued Deutsche Bank for misrepresentations about its mortgage loans.

Exactly. Once the investors realized that DoJ sued Deutsche, they saw an opportunity to get out from under their losses in MBS. This can be replicated across a host of other investors. Chris Whalen estimates that “With Bear, WaMu and his own production, [JPM CEO Jamie Dimon] has $50 billion in ’33 Act claims that are going to trial.”

I would really love to see some of the emails passing back and forth inside these companies. “Serene” and “calm” are not words I would use to describe them.