JPMorgan Chase & Co. has agreed to pay $388 million to end an investor class action in New York federal court. The financial giant was accused of misrepresenting underwriting standards for $10 billion worth of mortgage-backed securities. JPMorgan entered into a settlement with the Laborers Pension Trust Fund for Northern California and the Construction Laborers Pension Trust for Southern California, which are representing a class of investors in nine public offerings issued before the financial meltdown. The settlement must be approval by the court. The settlement amount is said to represent, on a percentage basis, the largest recovery ever achieved in a mortgage-backed securities (MBS) purchaser class action. It’s more than two-and-a-half times greater than the average percentage recovery in previous MBS class settlements, according to reports.
The proposed settlement comes after the court partially granted the investors’ bid for class certification in September, finding they had met predominance requirements for liability, but not for damages. There were more than 80 million pages of documents turned over in discovery and 42 depositions taken.
The case, filed in 2009, alleged that New York-based JPMorgan made false representations about the quality of mortgages underlying a series of securities it issued in 2007 in public offerings. The lead Plaintiffs claimed that rather than being filled with “quality mortgages,” the securities were stuffed with “subprime home loans” that imploded when the housing bubble burst, beginning in 2007.
The Plaintiffs claimed that underwriting standards in the offering documents were abandoned, that appraisers falsified appraisal values, failed to follow industry standards, and that loan-to-value ratios set out in the offering documents were false. The case had survived a motion to dismiss in March 2011. However, U.S. District Judge John G. Koeltl ruled that the lead Plaintiffs could only bring claims related to tranches of the securities they actually held. He dismissed claims for holders of the other 10 securities offerings.
U.S. District Judge Paul Oetken, who is now presiding over the case, allowed the lead Plaintiffs to pursue claims for investors in the other 10 offerings in April 2013. Discovery revealed that only a handful of investors were involved in two of the trusts, which had separate lawsuits pending, narrowing the suit to nine offerings. In partially certifying the class in September, Judge Oetken found that the Plaintiffs’ expert had not created a systemically applicable model for calculating damages and noted that the market for the certificates was “not particularly” liquid. The lead Plaintiffs and JPMorgan entered mediation in June, which led to an agreement in principle to settle the action.
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