Monday, October 1, 2012


So JPMorgan is being sued by the state of New York's attorney general, Eric Schneiderman. JPMorgan is being sued because a firm they acquired in the 2008 fire sale - Bear Stearns - is accused of deceiving investors in 2006 and 2007 about loans they turned over to JPMorgan, which they subsequently bundled up and turned into securities. JPMorgan then sold the securities to unsuspecting clients.

The lawsuit alleges that JP Morgan essentially abandoned underwriting standards and guidelines in order to make a sale. While Bear Stearns is at the heart of the complaint JPMorgan is being sued because (1) JPMorgan created securities out of the toxic loans that originated with Bear Stearns, and because (2) Bear Stearns is now owned by JP Morgan (after being acquired for $2 a share in March of 2008).

The suit alleges that JPMorgan didn't care if the purchaser of their securities got a lemon because JPMorgan just wanted to sell product and increase trading volume.

While losses related to the investments total more than $20 billion, it should be noted that the lawsuit effectively follows an earlier set of cases where JPMorgan was (1) fined over $155 million for shady security deals (they were later granted an exemption to continue trading security swaps), and (2) sued by the state of New York for filing illegal foreclosures with the aid of the byzantine and murky title recording system controlled by the homeowner hostile MERS corporation (which I discuss here), which allowed financial firms to push homeowners out of their homes (The People of the State of New York v. JPMorgan Chase Bank).

Expect another $100 million-plus settlement, and for things to continue as before. Carry on.

- Mark

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