$13B MBS Fraud Settlement Between JPMorgan and the US is Under Dispute in New Securities Lawsuit

Better Markets, a non-profit group, is suing the US Department of Justice to block the $13 billion mortgage-backed securities settlement reached between the federal government and JP Morgan Chase (JPM). The group wants the deal to undergo judicial review.

The settlement resolves DOJ mortgage bond claims with a$2 billion civil penalty and includes $4 billion of consumer relief, another $4 billion to settle claims related to Freddie Mac and Fannie Mae, and another $1.4 billion to settle a National Credit Union Administration-instigated securities case. JPMorgan sold the mortgage bonds in question in the years heading into the housing market collapse. The loans that were involved lost value or defaulted when the bubble burst.

As part of the agreement, the firm acknowledged that it made “serious misrepresentations” about the MBS to investors. While the deal doesn’t release bank from criminal liability, it grants civil immunity for its purported actions. Now, Better Markets, which describes itself as a “Wall Street” watchdog, is saying that the record settlement between the US government and JP Morgan was “unlawful” because a court did not review the deal.

According to Better Markets CEO Dennis Kelleher, the DOJ served as “investigator, prosecutor, judge, juror, sentencer and collector” when negotiating the securities settlement and he wonders whether the payment is sufficient to offset the harm suffered by the economy. His group also claims that the government agency and U.S. Attorney General Eric Holder have a “conflict of interest” and are using the $13 billion deal to repair their “reputations.”

In other JPMorgan-related news, the Securities and Exchange Commission says two of the bank’s former traders that are accused of concealing over $2 billion in losses involving wrong-way derivatives bets don’t have the right to see evidence gathered by the government because they are fugitives. Julien Grout and Javier Martin-Artajo have yet to show up in this country to face civil and criminal claims and should therefore not be granted evidence or be able to question witnesses in the regulator’s case. Martin-Artajo, who oversaw the synthetic portfolio’s trading strategy, now resides in Spain. Grout, who worked under him as a trader, now lives in France.

The office of Manhattan U.S. Attorney Preet Bharara is accusing the two men of securities fraud related to trades by Bruno Iksil, who was central to the London Whale debacle. The SEC says the ex-JPMorgan employees sought to improve portfolio performance to gain approval at work.

At the SSEK Partners Group, our mortgage-backed securities lawyers represent high net worth clients and institutional investors. Your initial case assessment is a no obligation, free consultation.

Feds sued over $13B deal with JPMorgan Chase, CBS News, February 10, 2014

Ex-JPMorgan Traders Not Entitled to Evidence, SEC Says, Bloomberg, February 10, 2014

Better Markets Inc. v. U.S. Department of Justice

JPMorgan agrees to $13 billion mortgage settlement, CNN, November 19, 2013

More Blog Posts:

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities, Institutional Investor Securities Blog, December 23, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013