JPMorgan Chase is to pay a record US$13bn settlement after admitting that it made “serious misrepresentations” to the public about numerous residential mortgage-backed securities (RMBS) transactions.
The US Justice Department said that as part of the settlement, JPMorgan acknowledges that it “regularly represented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines”. It said that contrary to this, 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.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said 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 behavior. 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.”
“Through this US$13bn resolution, we are demanding accountability and requiring remediation from those who helped create a financial storm that devastated millions of Americans,” said 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.”
Of the US$13bn settlement, US$9bn will be paid to settle federal and state civil claims by various entities related to RMBS. The US authorities said JPMorgan will pay out the remaining US$4bn in the form of relief to aid consumers harmed by the unlawful conduct of JPMorgan, Bear Stearns, and Washington Mutual.
“We are pleased to have concluded this extensive agreement with the President’s RMBS Working Group and to have resolved the civil claims of the Department of Justice and others,” said JP Morgan chairman and CEO, Jamie Dimon. “Today’s settlement covers a very significant portion of legacy mortgage-backed securities-related issues for JPMorgan Chase, as well as Bear Stearns and Washington Mutual.”
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Originally Written: November 20, 2013