Reuters and Bloomberg are reporting that according to person familiar with the case, JPMorgan Chase (JPM) has consented in principal to resolve a class action case related to Bear Stearns’ sale of $17.58B of faulty mortgage securities for $500 million. JPMorgan purchased Bear Stearns in 2008.
The agreement settles claims that Bear Stearns violated federal securities laws when, from May 2006 to April 2007. it sold certificates backed by over 47,000 primarily subprime and low documentation “Alt-A” mortgages in over a dozen offerings. Almost all certificates were eventually reduced to “junk” status even though 92% of them had been given “trip-A” ratings previously.
The plaintiffs, led by the New Jersey Carpenters Health Fund and, the Public Employees’ Retirement System of Mississippi, claim that offering documents included misleading and false statements about underwriting guidelines that Bear’s EMC Mortgage unit and other lenders used, as well as inaccuracies related to associated property appraisals. According to the lawsuit, because of the omissions and false statements, the class bought certificates that were a lot risker than what they were represented as and unequal in quality to other investments that received the same credit rating.
Even though the plaintiffs have not accused Bear Sterns of fraud, but they want to hold the firm negligent and liable for the losses that they sustained. Both parties intend to seek preliminary approval of the settlement by early next month.
JPMorgan helped rescue the beleaguered Bear Stearns during the financial crisis after the Federal Reserve consented to take charge of a $30 billion portfolio that contained mortgage-linked Bear Stearns assets. In 2012, NY Attorney General Eric Schneiderman filed a securities lawsuit against JPMorgan accusing Bear Stearns businesses of fooling investors about the faulty loans backing securities, resulting in significant losses.
Last year, JPMorgan settled the case for $13 billion, which resolved claims on a federal and state level. $713 million went to New York.
In September, in another class action securities case, a federal judge said that JPMorgan would have to face the complaint by investors accusing the bank of misleading them about the safety of $10 billion of mortgage-backed securities that it sold prior to the economic crisis. U.S. District Judge Paul Oetken in Manhattan certified a class action regarding the firm’s liability but not regarding damages.
The lead plaintiffs in that case are Institutional investors Construction Laborers Pension Trust for Southern California and Laborers Pension Trust Fund for Northern California. The class is made of investors prior to 3/23/09 who put money into certificates issued from nine JPMorgan-crated trusts for an April 2007 offering. The plaintiffs also are accusing JPMorgan of misleading investors about the loans underlying the certificates.
In other JPMorgan news, the financial firm was recently reprimanded by the Monetary Authority of Singapore because its branch there allowed to representatives to give advice on structured deposits without getting the required authorization. Such recommendations reportedly were given multiple times between November 2010 and January 2013.
JPMorgan Chase to settle class action suit, pay $500 million, The Washington Post, January 9, 2014
JPMorgan Said to Pay $500 Million to End Mortgage-Bond Suit, Bloomberg, January 9, 2015
JPMorgan ‘Reprimanded’ by Singapore Regulator for Violating Rule, Bloomberg, January 9, 2015
More Blog Posts:
SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014
$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014
Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG, Institutional Investor Securities Blog, December 26, 2014