November 28, 2012
New York Attorney General Sues J.P. Morgan for Fraudulent and Deceptive Acts in Promoting and Selling Mortgage-Backed Securities
In New York v. J.P. Morgan Securities LLC, No. 451556/2012 (County of New York Oct. 10, 2012), the New York Attorney General sued J.P. Morgan (and several of its affilliates, including entities formerly a part of Bear, Stearns & Co.) for its role in connection with the creation and sale of residential mortgage-backed securities (RMBS). The multiple allegations include (1) J.P. Morgan’s systematic failure to fully evaluate loans and disregard for defects uncovered by its limited review, (2) its failure to reform practices and disclose information to investors, (3) its failure to confirm that loans were originated in accordance with applicable underwriting guidelines (including assurance that loans were extended to borrowers who demonstrated a willingness and ability to repay), (4) its failure to follow due diligence processes that it communicated to investors, (5) its disregard for defects that the watered-down due diligence uncovered, and (6) its failure to properly respond to defects uncovered through post-purchase quality control. The complaint alleges that J.P. Morgan had integrated the securitization process by controlling the originator and MBS sponsor and that those entities colluded to defraud investors of proceeds paid by the originator to the sponsor to settle re-purchase claims.
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