JPMorgan: Prosecutors say subprime mortgage bonds violated law

August 07, 2013|By E. Scott Reckard
  • Federal prosecutors have told JPMorgan Chase & Co., the nation's largest bank, that certain of its subprime mortgage-backed securities offerings broke the law.
Federal prosecutors have told JPMorgan Chase & Co., the nation's… (Spencer Platt / Getty Images )

JPMorgan Chase & Co. disclosed that it may become the latest giant bank to face a Justice Department lawsuit over bonds backed by housing-boom loans, and said a parallel criminal investigation is continuing. 

Federal prosecutors believe that JPMorgan Chase, the nation's largest bank, violated securities law in its sale of bonds backed by subprime and other high-risk mortgages, the bank said Wednesday in a Securities and Exchange Commission filing.

JPMorgan said the civil division of the U.S. attorney’s office in Sacramento had reached the "preliminary" conclusion that violations took place from 2005 to 2007. Federal prosecutors are conducting a criminal probe of the same mortgage-backed securities offerings, the filing said.

JPMorgan said it also has responded to "a number of subpoenas and informal requests for information from other federal and state authorities concerning mortgage-related matters." Issues included the origination and purchase of loans, underwriting, and the issuance and trading of mortgage-backed securities.

Quiz: How much do you know about mortgages?

While many observers have deplored the dearth of criminal cases in the aftermath of the mortgage meltdown, authorities have been pursuing civil settlements on many fronts.

JPMorgan's disclosure came one day after the Justice Department and SEC filed securities-fraud lawsuits against the second-largest U.S. bank, Bank of America Corp., in connection with a single mortgage-backed securities deal in 2008.

Bank of America denied wrongdoing in connection with that bond deal, which involved jumbo prime loans made to affluent borrowers.

The bank said last week that in addition to the jumbo-mortgage case, the SEC also may file civil charges related to complex mortgage-related securities called collateralized debt obligations, which were issued by BofA's Merrill Lynch unit.

And BofA said the New York attorney general may file a separate mortgage securities lawsuit against Merrill Lynch.

In another major case last month, the Swiss bank UBS reached an $885-million settlement with regulators over mortgage securities sold to housing finance giants Fannie Mae and Freddie Mac. UBS said Tuesday that it would pay an additional $50 million to settle SEC charges that it misled investors in a mortgage-bond offering.

In announcing the Bank of America litigation, Atty. Gen. Eric H. Holder Jr. said a financial fraud task force teaming the Justice Department and SEC with other federal and state regulators was pursuing “a range of additional investigations."


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