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JPMorgan (JPM) Sued Over $3.6B In Sale Of Mortgage Securities

 December 17, 2012 01:38 PM
 


(By Balachander) The National Credit Union Administration (NCUA) has sued J.P. Morgan Securities and Bear, Stearns & Co. alleging violations in the sale of $3.6 billion in mortgage-backed securities to four corporate credit unions.

NCUA's suit — the largest the agency has filed to date — alleges Bear, Stearns & Co. made misrepresentations related to the underwriting and subsequent sale of mortgage-backed securities to U.S. Central, Western Corporate, Southwest Corporate and Members United Corporate federal credit unions.

According to the NCUA, the complaint states underwriting guidelines in the offering documents were "abandoned" and the misrepresentations caused the credit unions to believe the risk of loss was minimal.

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"Firms like Bear, Stearns acted unfairly by ignoring the rules for underwriting. They packaged these securities and then told buyers the paper was sound," said NCUA Board Chairman Debbie Matz. "When the securities plunged in value, we learned the truth."

The NCUA said these securities were "significantly riskier than represented" and "routinely overvalued." The faulty securities, the complaint states, "were destined from inception to perform poorly."

All four corporate credit unions became insolvent and were subsequently placed into NCUA conservatorship and liquidated as a result of losses from these faulty securities, the agency noted.

These failures caused significant losses to the credit union system, NCUA said.

The NCUA said it is now working to hold these underwriters accountable and secure recoveries on behalf of federally insured credit unions

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To date, the agency said it has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities and HSBC.

J.P. Morgan (NYSE: JPM) acquired Bear, Stearns in 2008 during the global financial crisis.

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