The New York Attorney General’s (NYAG) Office filed a civil law suit against JPMorgan Chase & Co. (NYSE:JPM) alleging that its wholly owned subsidiaries JPMorgan Securities LLC formerly known as Bear, Stearns & Co. Inc. and EMC Mortgage LLC committed multiple fraud involving the creation and sale of residential mortgage–backed securities (RMBS) on thousands of investors.
According to the lawsuit filed by the attorney general with the Supreme Court of the State of New York, JPMorgan Chase & Co. (NYSE:JPM) is legally liable for all the misconduct of its two subsidiaries after acquiring the businesses in 2008.
Baupost’s Seth Klarman: the Fed has broken the stock market [Q4 Letter]
Baupost founder Seth Klarman told investors that the large amounts of stimulus that have been poured into the world's economies are masking the severity of the problems caused by COVID-19. Q4 2020 hedge fund letters, conferences and more In a letter seen by the
In his complaint, Attorney General Eric Schneiderman claimed that JPMorgan Chase & Co. (NYSE:JPM) and its subsidiaries led investors to believe that they “carefully evaluated- and would continue to monitor- the quality of loans in their RMBS.”
In addition, the Attorney General alleged that the “defendants systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures, and defects in the underlying loans.”
Schneiderman emphasized in the complaint that the misconduct of JP Morgan’s subsidiaries from 2006 to 2007 devalued the mortgage securities, and investors suffered significant losses. The total value of investor losses was $22.5 billion, more than a quarter of the $87 billion original principal balance.
The New York Attorney General’s Office asked the company to “pay damages caused, directly or indirectly by the fraudulent and deceptive acts.”
In a statement, JPMorgan spokesperson Joseph Evangelisti said the company would challenge the allegations of the Attorney General Office citing that Bear Stearns committed the misconduct before its acquisition in 2008. He said, “We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record – instead relying on recycled claims already made by private plaintiffs.”
He added that JPMorgan Chase & Co. (NYSE:JPM) continues to cooperate with the ongoing investigation with the members of the President’s RMBS Working Group.
President Barack Obama established the RMBS Working Group to investigate and file lawsuits against entities involved in committing fraud that led to the 2008 financial crisis.