The Justice Department, along with federal and state partners, has agreed a USD13bn settlement – the largest settlement with a single entity in American history – with JPMorgan for misleading investors.
The agreement resolves federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to 1 January 2009.
As part of the settlement, JPMorgan acknowledged it made serious misrepresentations to the public – including the investing public – about numerous RMBS transactions. The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country. The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges.
This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS working group.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” says Attorney General Eric Holder. “JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behaviour. The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability. I want to personally thank the RMBS working group for its tireless work not only in this case, but also in the investigations that remain ongoing.”
The settlement includes a statement of facts, in which JPMorgan acknowledges that it regularly represented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors. This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis
“Through this USD13bn resolution, we are demanding accountability and requiring remediation from those who helped create a financial storm that devastated millions of Americans,” says associate Attorney General Tony West. “The conduct JPMorgan has acknowledged – packaging risky home loans into securities, then selling them without disclosing their low quality to investors – contributed to the wreckage of the financial crisis. By requiring JPMorgan both to pay the largest FIRREA penalty in history and provide needed consumer relief to areas hardest hit by the financial crisis, we rectify some of that harm today.”