By Sarah N. Lynch
WASHINGTON (Reuters) - The U.S. Justice Department on Monday charged Deutsche Bank's <DBKGn.DE> former head of subprime mortgage trading with civil fraud in connection with conduct dating back to the 2007-2009 financial crisis.
Paul Mangione, the former trader, is accused in the complaint of misrepresenting information about the loans underpinning two residential mortgage-backed securities that were sold to investors.
The government's case against the former trader, filed in a federal court in Brooklyn, came after the bank in January reached a $7.2 billion settlement in a related case over risky mortgage securities sold to investors.
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Patrick Smith, an attorney at Smith Villazor LLP representing Mangione, issued a lengthy statement criticizing the government for bringing the case against his client.
"The decision to sue Paul Mangione for civil penalties in this case is both wrong and unfair," Smith said.
"The facts show that Mr. Mangione never agreed to mislead any investor. And it’s unfair because Mr. Mangione is being singled out for blame on two ten-year old securitization transactions on which numerous other participants had more input and responsibility," Smith said.
The Justice Department charged Mangione for his role in the alleged scheme in its complaint, saying he defrauded investors in a $1 billion security called ACE 2007-HE4 and another $400 million security called ACE 2007-HE5.
The government also said he misled people about the origination practices of Chapel Funding LLC, one of the bank's subsidiaries, and approved offering documents that misstated information about the loans, such as borrowers' ability to repay and whether they complied with lending guidelines.
"By allegedly misleading investors about the riskiness of these securities, Mr. Mangione prioritized his and his employer’s bottom line over principles of honesty and fair dealing," said Chad Readler, the Acting Assistant Attorney General for the Justice Department’s Civil Division.
The bank's settlement was the largest resolution for the conduct of a single entity in misleading investors in residential mortgage-backed securities, surpassing the $7 billion that Citigroup <C.N> had previously paid to federal and state authorities in 2014.
Mangione's attorney, meanwhile, said his client "had no role" in buying or originating the loans and no oversight of Chapel's mortgage loan underwriting operations.
"We will fight the allegations in this overwrought complaint," Smith said.
(Reporting by Sarah N. Lynch; Editing by Jonathan Oatis and Diane Craft)