A pension fund for Chicago policemen filed suit against Bank of America (BAC) and U.S. Bancorp (USB) this week, claiming the companies failed to keep investors advised of risks within mortgage pools.

The Policemen's Annuity and Benefit Fund of the City of Chicago filed the suit, claiming BofA and U.S. Bank, while serving as trustees of securitized mortgage pools, violated contractual provisions by failing to review and red-flag files on securitized loans that contained defective or incomplete documentation.

The fund further alleged the banks, as trustee, should have forced the seller of the mortgages to cure defects in the files.

The policemen's fund also claimed the banks violated the Trust Indenture Act, which governs the conduct of trustees, by failing to timely inform MBS holders about breaches in agreements tied to management of the trust.

Furthermore, the fund suggests the trustees failed to exercise their powers as trustee to help mortgage investors such as the pension fund.

The mortgage loans held in trust were initially originated or acquired by the now-defunct Washington Mutual. The original trustee overseeing the loans was LaSalle Bank National Association. BofA was LaSalle's successor-in-interest to the trust after a merger.

Eventually, U.S. Bank succeeded BofA as trustee, resulting in a situation that makes both defendants in the case.

The suit does not elaborate on how much money the pension fund invested in the RMBS securities contained in the trust, but the plaintiffs claim the covered trusts have lost tens of millions of dollars due to poor performing loans.

The WaMu 2006-AR12 class within the trust recognized more than $68 million in losses and 25% of its remaining loans are more than 90 days delinquent, according to the suit. The WaMu 2006-AR16 is alleged to have losses in the $70-million range.

Other classes in the trust with losses include the WaMu 2007-HY1 ($168 million); WaMu 2007-HY7 ($195 million); WMALT 2006-5 ($166 million) and the WMALT 2006-AR1 ($114 million).

Bank of America declined to comment.

Meanwhile, U.S. Bank released a statement, saying, "The complaint contains numerous misstatements and mis-characterizations of U.S. Bank's role as trustee.  Plaintiff freely admits that it did not even invest in most of the trusts about which it sues. We intend to vigorously defend the case."