J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles

Reuters is reporting that according to a source in the know, J.P. Morgan Chase & Co.’s (JPM) tentative $13 billion residential mortgage-backed securities settlement with the US Justice Department has hit a couple of stumbling blocks. The firm is reportedly trying to include a provision that would close any criminal probes into its packaging and sale of mortgage securities—except for an inquiry by California prosecutors. This counters the bank’s earlier decision to agree to keep criminal investigations out of the deal.

The settlement, preliminarily reached last week, includes $4 billion to resolve claims made by the Federal Housing Finance Agency, which contends that J.P. Morgan misled Freddie Mac (FMCC) and Fannie Mae (FNMA) about the quality of loans the latter two bought from the investment bank before the 2008 economic crisis. Another $4 billion is for consumer relief, while $5 billion is for penalties.

The agreement also would settle a separate mortgage securities lawsuit filed separately by NY AG Eric Schneiderman against the firm over Bear Stearns (BSC)-packaged mortgage bonds. The state’s top prosecutor contended that Bear Stearns misled investors about the faulty loans behind the securities, neglected to complete assess the debt, disregarded defects that were found, and concealed its failure to properly examine the loans or reveal their risks.

The deal isn’t final and certain matters still need to be resolved, such as the disagreement with the Federal Deposit Insurance Corp. over who should be responsible for legal liabilities stemming from the bank’s takeover of Washington Mutual’s (WAMUQ) obligations and assets during the economic collapse. JPMorgan paid $1.9 billion to acquire that bank from FDIC. However, the firm is disputing its degree of responsibility for investor losses on the failed savings holding company’s mortgage securities. The DOJ wants a provision that will stop the bank from attempting to move WaMu liabilities covered under the agreement to the FDIC.

Other Recent JPMorgan Settlements
Also last week, JPMorgan consented to pay $100 million to the Commodity Futures Trading Commission over its “London whale” trades debacle. The CFTC accused the bank’s London traders of employing a reckless derivatives strategy that cost JPMorgan $6.2 billion in losses. While the firm didn’t deny or admit to the agency’s finding that there was a violation, it did agree about “certain facts.” For one, J.P. Morgan admitted that it did not properly supervise the traders who tweaked prices to lower the bank’s losses at cost to investors.

That settlement comes a month after the firm said it would pay $920 million over related charges to the Securities and Exchange Commission, the Federal Reserve, Office of the Comptroller of the Currency in the US and the Financial Conduct Authority in the UK.

Please contact our RMBS fraud lawyers if you think you might have grounds for a mortgage-backed securities case.


The Resolution Law Group: JPMorgan Considers $11B Mortgage-Backed Securities Settlement

Now that US Attorney General Eric Holder has turned down JPMorgan Chase’s (JPM) offer to settle criminal and civil charges related a mortgage-backed securities probe, the financial firm is looking at a settlement of possibly $11 billion. The financial figure has gone up as talks have expanded to include additional cases with more regulators.

The MBS investigations are over residential mortgage-backed securities (RMBS) that JPMorgan, Washington Mutual (WAMUQ), and Bear Stearns (BSC) issued between 2005 and 2007. Authorities have been looking into whether JPMorgan, which the other two firms acquired during the financial crisis, misled investors of the quality of the mortgages that were backing the securities. A lot of these RMBS failed as housing prices dropped. JPMorgan says that Washington Mutual and Bear Stearns issued about 70% of these RMBS.

One possible settlement could include $4 billion in relief to consumers and a $7 billion penalty. However, according to sources familiar with the settlement talks, the two sides have not come close to agreeing on the figure and the amount could change.

JPMorgan wants any settlement to confirm that the investigations are done and there will be no additional liability related to the MBS. Aside from the expected fine, the US Justice Department may try to get JPMorgan to admit wrongdoing, which the latter might consent to so as to avoid criminal charges. However, sources say that even if a deal is reached, the issue of whether anyone should be criminally charged over the RMBS losses may not be resolved.

Also part of the settlement talks is the Federal Housing Finance Agency. FHFA wants JPMorgan to pay over $6 billion to settle claims accusing the investment bank of misleading Freddie Mac and Fannie Mae about the mortgages that they bought from the bank during the housing bubble. Meantime, NY Attorney General Eric Schneiderman, wants recovery from JPMorgan over securities that the latter bought, which were issued by Bear Stearns as that firm was failing. Schneiderman contends that investors lost $22 billion.

It was just last year that JPMorgan settled the US Securities and Exchange Commission’s MBS case for $296.6 million. However, the bank settled without denying or admitting wrongdoing.

Last week, JPMorgan settled for $920 million with regulators over the London “whale” trading investigations. That debacle cost the financial firm over $6 billion last year. JPMorgan also consented to pay $80 million for credit card practice-related claims to its sale of identity fraud protection to customers who never received these products.

The Resolution Law Group represents high net worth individuals and institutional investors in securities arbitration, mediation, and litigation. We are here to help our clients recoup their RMBS fraud losses.

The Resolution Law Group: Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court

New York’s highest court has revived a declaratory judgment action against D & Liability insurers after finding that the Securities and Exchange Commission order mandating that Bear Stearns (BSC) pay $160M in disgorgement failed to establish in a conclusive manner that payment could not be insured. The securities lawsuit is J.P. Morgan Securities, Inc., et al. v. Vigilant Insurance Company, et al.

Claiming that Bear Stearns engaged in market timing mutual fund trades and illegal late trading and for certain clients over a four-year period, the SEC wanted $720M in sanctions from the firm. The financial firm, however, argued that the activities only caused it to make $16.9M in revenues. A settlement was reached ordering Bear Stearns to pay $160M in disgorgement and $90M in penalties, with the firm not having to deny or admit to the Commission’s claims.

A declaratory action followed with a plaintiff in the New York Supreme Court seeking to have D & O insurers pay for $150M of the $160M disgorgement. Citing New York law, the insurers argued that the case should be dismissed, noting that under state law disgorgement is not insurable. A lower court turned down these contentions, denying the motion.

Then, the Appellate Division, First Department reversed the ruling on appeal, finding that Bear Stearns’ settlement offer, the Commission’s order, and associated documents are not prone to any other interpretation besides that the firm knew and purposely took part in illegal late trading on behalf of certain clients that received preferential treatment and, also, the Commission’s order required disgorgement of money obtained via activities that were not legal.

Holding, the First Department said that disgorgement can be determined per matter of law when settlement funds are considered “disgorgement,” facts show that the funds came from an enterprise that was not legal, and what was paid makes up a reasonable estimation of all of the profits made. The court also said that the party doesn’t have to profit from all of the money that ends up being disgorged. Following further appeal, the New York Court of Appeals reversed this decision, returning the action to a lower court for resolution and discovery.

“Remember the old movie thrillers about Godzilla fighting King Kong (or the language-dubbed Japanese version when the G’ monster battled “Mothra,” to the death)?” said Institutional Investor Fraud Geoffrey Broderick. “ I guess “art” imitates life as we now have a live 21st century behemoth battle as the Insurance Industry takes on Wall Street. Maybe this would have been a fair fight a decade ago, but today – not even close. Banks buy Wall Street firms. Wall Street firms parlay bank deposits into war chests, and … advantage Wall Street. It’s not that J.P. Morgan (JPM) needs Vigilant Life’s money, it’s just that, well, the money is there for the taking – candy from a baby. Politicians, judges and the rest of us take note: There’s a new gang in town and they get what they want when they want it.”

Please do not hesitate to email or call the Securities Fraud at The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

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