JPMorgan Chase & Co. and Credit Suisse agreed to pay $417 million to settle the latest cases brought in the federal government's efforts to punish Wall Street firms for the financial crisis.
The cases stem from alleged misstatements and failures to disclose that borrowers had defaulted on subprime home loans bundled into residential mortgage-backed securities, or RMBS. The faulty mortgage investments fueled the housing bubble before it burst in 2007.
The settlements, announced Friday, came four years after the mortgage meltdown pushed the investment bank Lehman Bros. to collapse, the start of a chain of events that dragged down the U.S. economy.
"In many ways, mortgage products such as RMBS were ground zero in the financial crisis," Robert Khuzami, director of the SEC's enforcement division, said in a statement. "Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses."
The SEC cases — brought by a working group of state and federal law enforcement officials set up by the U.S. Justice Department earlier this year — mark the latest of a wave of government actions taken against major U.S. banks.
Credit Suisse, which agreed to pay $120 million, did not immediately respond to a request for comment.
JPMorgan, which agreed to pay $297 million, noted in a statement that the SEC's complaint does not include charges of intentional misconduct. "J.P. Morgan is pleased to have reached agreement with the SEC to put these matters concerning RMBS behind it," the bank said.
Neither firm admitted or denied the allegations as part of the settlements.
JPMorgan was the target of the RMBS working group's first case, filed in October by New York Atty. Gen. Eric Schneiderman. That case, filed in state court, involved the alleged defrauding of investors by Bear Stearns & Co., the now-defunct investment bank purchased by JPMorgan as the finance crisis deepened in 2008. (The SEC's case against JPMorgan also largely involves securities issued by Bear Stearns.)
In October, federal prosecutors in New York sued Wells Fargo, accusing it of defrauding a government-backed mortgage insurance program.
Later that month, federal prosecutors filed a $1-billion lawsuit against Bank of America. The suit alleged that Countrywide Financial Corp., which the bank purchased in 2008, defrauded mortgage finance giants Fannie Mae and Freddie Mac.
But the cases brought by the SEC on Friday are not civil lawsuits, much less the criminal charges called for by critics of the federal government's response to the financial crisis.
The SEC's accusations came through an administrative proceeding alleging negligence. In previous SEC settlements related to the financial crisis, the agency filed lawsuits naming individual defendants at Goldman, Sachs & Co., Citigroup Inc., Countrywide Financial Corp., New Century Financial Corp., IndyMac Bancorp and Wells Fargo & Co.
Khuzami said attempts to find culpable individuals "are the starting point of every case" — but none could be identified in the JPMorgan Chase and Credit Suisse cases. That underscores the difficulty of assigning blame in the complex process by which Wall Street firms used streams of mortgage income to back bonds, often structuring the securities to meet the specific demands of investors, he said.
In the Credit Suisse and Bear Stearns/JPMorgan cases, that proved impossible because different employees put the deals together and crafted the disclosures to investors, each advised separately by lawyers.
"We have to identify a single individual who both knew what the investors were told and knew or should have known the disclosures were inadequate," Khuzami said.