JPMorgan Chase & Co. (JPM) has consented to pay $388 million to resolve a securities lawsuit filed by investors claiming that the bank misled them about the safety of $10 billion of mortgage-backed securities (MBSs). Included among the plaintiffs in the case are the Laborers Pension Trust Fund for Northern California, the Fort Worth Employees’ Retirement Fund, and the Construction Laborers Pension Trust for Southern California.
The funds, and other investors in nine offerings that were made prior to the financial crisis, contend that JPMorgan misled them about the appraisals, underwriting, and credit quality of home loans that were underlying the securities. Following the collapse of Lehman Brothers Holdings Inc. in 2008, the certificates’ value dropped to 62 cents on the dollar.
JPMorgan is settling the case but has denied any wrongdoing. It will be up to a judge to decide on whether to approve the deal.
According to a copy of the securities action filed in 2010, the lawsuit is for entities and persons that acquired the bank’s Mortgage Pass-Through Certificates. The certificates involved were allegedly sold pursuant to or traceable to a misleading Registration Statement from 2007, as well as misleading and false Prospectus Supplements that also were issued that year. According to the Complaint, examples of purportedly false and misleading statements found in offering documents included claims that the loans had received investment grade credit rating, and loans backing the Certificates had specific loan to value ratios.
The plaintiffs argue borrowers were not assessed according to their ability to pay back the loans. Instead, the plaintiffs contend, loan originators made as many loans as they could because they were making a profit from selling the loans to the defendants. Also, the loan originators and borrowers are accused of inflating the income of the borrowers to generate fake high levels so borrowers could qualify for loans that were beyond their affordability range.
The plaintiffs say the certificates credit’ ratings were not accurate and understated the risk involved. Because of this, Plaintiffs contend, the Class ended up buying the Certificates at a higher risk than what was represented.
In 2013, JPMorgan agreed to pay $13 billion to resolve a U.S. Justice Department case claiming that the bank misled MBS investors about the risks involved in MBS. The bank has always maintained that the certificates performed poorly not because the loans were bad quality but because the economy failed.
However, in a statement of facts that was part of the settlement with the DOJ, J.P. Morgan admitted that it told investors that the securities’ mortgage loans were in compliance with underwriting guidelines. This occurred even though bank employees were aware that some of the loans were not in compliance.
At the SSEK Partners Group, our institutional investment fraud lawyers represent pension funds, credit unions, community banks and other investors that have sustained losses in mortgage-backed securities cases, as well as claims involving residential mortgage-backed securities. We also work with high net worth investors to recoup their financial fraud losses. Your initial case consultation with us is a free, no obligation session.
JPMorgan reaches $388 million settlement in mortgage securities case, Reuters/Yahoo, July 17, 2015