04 October 2012

New York sues JP Morgan over housing boom 'fraud'

Authorities in New York are suing one of the US's biggest banks for allegedly defrauding investors who lost more than $20 billion during the country's housing boom.

By James Barnes

Wall Street's House of Morgan: bank taking flack from state attorney general

Manhattan banking corporation JP Morgan Chase is being sued by the New York Attorney General over charges relating to mortgage-backed securities sold by New York investment bank Bear Stearns, which was acquired by JP Morgan in a fire sale in March 2008. JP Morgan has confirmed it will contest the allegations.

Distorted quality

According to The Guardian newspaper in London, the civil suit -- filed by New York Attorney General Eric Schneiderman -- contends that Bear Stearns, and its lending unit EMC Mortgage, defrauded investors who purchased mortgage securities packaged by the companies from 2005 to 2007. The firms allegedly distorted the quality of the loans in the securities, and ignored evidence of broad defects.
Unlike other mortgage crisis cases, the JP Morgan suit does not focus on a particular deal, but institution-wide improper practices affecting numerous deals.

Recycled claims

A spokesman for Mr Schneiderman declined to comment on the case. But JP Morgan spokesman Joseph Evangelisti said: 'We're disappointed that the New York AG 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.’
Gerald Silk, a lawyer at New York’s Bernstein Litowitz Berger & Grossmann commented: ‘The government's action represents a complete validation of the cases brought by investors who were duped by the fraudulent sale of mortgage-backed securities by JP Morgan, WaMu and Bear Stearns.’

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