Mortgage-Backed Securities Result in Lawsuit Against JPMorgan

Chicago, ILJPMorgan Securities and Bear Stearns & Co reportedly face a securities lawsuit filed by the National Credit Union Administration over mortgage-backed securities. This is not the first securities fraud lawsuit faced by JPMorgan related to mortgage-backed securities. The financial giant faces separate securities fraud litigation also filed by the National Credit Union Administration as well as a lawsuit filed by New York's Attorney General.

JPMorgan acquired Bear Stearns in 2008. Lawsuits filed against the two firms allege they misled investors about mortgage-backed securities in 2006 and 2007, including making misrepresentations about the sale of the mortgage-backed securities to four credit unions. The first lawsuit filed by the National Credit Union Administration was filed in 2011 and involved $1.4 billion in mortgage backed securities. That lawsuit is pending.

According to this most recent lawsuit, Bear Stearns knew that up to 74 percent of its substandard mortgages would fail within a year, but continued to repackage them and sell them. Bloomberg (12/17/12) reports the four credit unions purchased $3.6 billion in mortgage-backed securities based on misleading documents. The lawsuit, which was filed on February 14 in Kansas City, alleges documents used by Bear Stearns claimed the securities met underwriting guidelines, but those guidelines were "systematically abandoned."

In a separate lawsuit, JPMorgan Chase & Co and Goldman Sachs Group Inc. have asked a New York state judge to dismiss a lawsuit filed by investors. According to Bloomberg (12/17/12), the plaintiffs invested in residential mortgage-backed securities with the firms and other banks. Their lawsuit alleges the financial firms made misrepresentations about the loans that backed the securities.

JPMorgan and the defendants claim the lawsuit was not filed within the statute of limitations and further argued that the plaintiffs did not show they are entitled to relief. The lawsuit is Phoenix Light SF Ltd. v. JPMorgan Securities LLC, 651755-2012.

Meanwhile, Fifth Third Bancorp has agreed to pay $16 million to settle a securities fraud case filed by shareholders. According to the Business Courier (12/19/12), the lawsuit was filed four years ago and was consolidated into a class action lawsuit. Fifth Third said it settled the lawsuit to avoid potential litigation costs and denied any liability.