JPMorgan Unit Is Sued Over Mortgage Securities

The following is an excerpt from an article in:


The New York Times
Tuesday, October 02, 2012

JPMorgan Unit Is Sued Over Mortgage Securities

By GRETCHEN MORGENSON

The federal mortgage task force that was formed in January by the Justice Department filed its first complaint against a big bank on Monday, citing a broad pattern of misconduct in the packaging and sale of mortgage securities during the housing boom.

The civil suit against Bear Stearns & Company, now a unit of JPMorgan Chase, was brought in New York State Supreme Court by Eric T. Schneiderman, the attorney general who is also a co-chairman of the task force, known as the Residential Mortgage-Backed Securities Working Group.

The complaint contends that Bear Stearns and its lending unit, EMC Mortgage, defrauded investors who purchased mortgage securities packaged by the companies from 2005 through 2007.

The firms made material misrepresentations about the quality of the loans in the securities, the lawsuit said, and ignored evidence of broad defects among the loans that they pooled and sold to investors.

Moreover, when Bear Stearns identified problematic loans that it had agreed to purchase from a lender, it was required to make the originator buy them back. But Bear Stearns demanded cash payments from the lenders and kept the money, rather than passing it on to investors, the suit contends.

Unlike many of the other mortgage crisis cases brought by regulators such as the Securities and Exchange Commission, the task force’s action does not focus on a particular deal that harmed investors or an individual who was central to a specific transaction. Rather, the suit contends that the improper practices were institutionwide and affected numerous deals during the period.

A spokesman for Mr. Schneiderman declined to comment on the filing. A representative for JPMorgan, which acquired Bear Stearns in a fire sale in March 2008, said it would contest the allegations.

For more, visit www.nytimes.com.