JPMorgan Chase & Co and Credit Suisse Group AG will pay a combined $416.9 million to settle U.S. civil charges that they misled investors in the sale of risky mortgage bonds prior to the 2008 financial crisis. JPMorgan will pay $296.9 million, while Credit Suisse will pay $120 million in a separate case, with the money going to harmed investors, according to the U.S. Securities and Exchange Commission.
Both settlements addressed alleged wrongdoing in the packaging and sale of risky residential mortgage-backed securities (RMBS), including at the former Bear Stearns which JPMorgan bought in 2008. SEC enforcement chief Robert Khuzami had this to say in a statement:
Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed.
The SEC accused JPMorgan of materially overstating in a prospectus the quality of home loans that backed a $1.8 billion RMBS offering it underwrote in December 2006. According to the SEC, the largest U.S. bank represented that just four loans were delinquent by 30 to 59 days, when in fact there were more than 620, which was about 7 percent of the total. Investors lost at least $37 million as a result, according to the SEC. The regulator also faulted Bear’s failure to disclose its having arranged discounted cash settlements with originators that left investors stuck owning many problem loans, rather than forcing the originators to buy the loans back. It said Bear made at least $137.8 million from the practice.
The SEC said that Credit Suisse failed to disclose similar settlements, which netted $55.7 million. The Swiss bank also misled investors by falsely claiming when it would buy back mortgage loans in two offerings in which borrowers had defaulted on their initial payments, and that “all first payment default risk” had been removed, according to the SEC. About $84 million of JPMorgan’s payout and $39 million of Credit Suisse’s represented fines. The JPMorgan settlement requires approval by a federal judge in Washington, D.C., while Credit Suisse’s case was resolved in an SEC administrative proceeding. The cases are SEC v. JPMorgan Securities LLC et al, U.S. District Court, District of Columbia, No. 12-01862; and In re: Credit Suisse Securities (USA) LLC et al, U.S. Securities and Exchange Commission, No. 3-15098.
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