JPMorgan Chase is currently under federal criminal investigation over its sale of mortgage securities. This makes the bank, which is the biggest U.S. bank by assets, the first large financial institution to face criminal sanctions over securitization practices that contributed to the 2008 financial crisis. The Justice Department had previously told JPMorgan in May that prosecutors had “preliminarily concluded” that the bank violated civil securities laws related to mortgage securities it packaged and sold from 2005 to 2007. JPMorgan has already been sued over similar practices by the New York Attorney General’s office, and has settled similar cases brought by the Securities and Exchange Commission (SEC).
Other large financial groups also have disclosed in securities filings they are under U.S. investigation for their dealings in mortgage securities. Criminal investigations are underway against some banks, introducing the possibility that criminal charges against a major financial institution for mortgage-related conduct could be filed. This is most significant because prosecutors’ and securities regulators’ past statements had suggested that pre-crisis bad behavior didn’t necessarily “equate to criminal wrongdoing.”
JPMorgan has disclosed a number of expected enforcement actions that have been broadly mentioned by the bank and its chief executive and chairman, Jamie Dimon. But the recent disclosure gives much more detail. Once finalized, the enforcement orders may further damage the bank’s already-battered reputation and lead to heightened scrutiny of its practices. The Consumer Financial Protection Bureau (CFPB) is investigating JPMorgan’s collection and sale of delinquent consumer credit card debt, including its use of sworn documents to pursue bad debts. The California Attorney General’s office has sued the bank over similar practices.
The Office of the Comptroller of the Currency (OCC) told JPMorgan it will punish the lender for its credit card collections practices and use of allegedly dubious documents, including for potentially cheating active-duty members of the military under the Servicemembers Civil Relief Act. JPMorgan has previously settled cases under the servicemembers act related to home mortgages. But that isn’t the end of problems for the big bank. The OCC and CFPB have also told JPMorgan that they will formally discipline the bank for “unfair or deceptive” practices related to identity theft products it previously sold to consumers. Interestingly, JPMorgan has increased its estimate of possible legal losses in excess of its reserves by $800 million to $6.8 billion.
Efforts by JPMorgan to settle the Department of Justice (DOJ) lawsuit may be complicated by a 2003 settlement the bank reached with federal securities regulators. In July of that year, JPMorgan settled claims by the SEC involving violations of securities laws in connection with its dealings with Enron, the failed energy company. As part of that settlement, the bank pledged to refrain from violating federal securities laws. A federal lawsuit alleging violation of federal securities laws that JPMorgan had pledged not to break in the years immediately following a previous settlement should really complicate things for the bank. It does not bode well for the bank and its bosses.
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.