Mortgage Daily Logo

JPMorgan Settles Mortgage Securities Lawsuit

Mortgage News

JPMorgan Chase & Co.’s investment banking unit has settled for more than $150 million charges that it misled investors on mortgage securities. It’s the second big action announced against the financial behemoth in as many days.

J.P. Morgan Securities LLC was sued this month by the Securities and Exchange Commission in a federal court in Manhattan, according to a copy of the complaint.

The SEC claims that the company misled investors in a complex collateralized-debt obligation transaction at the beginning of the mortgage meltdown. That transaction was known as Squared CDO 2007-1.

“J.P. Morgan structured and marketed a synthetic collateralized debt obligation without informing investors that a hedge fund helped select the assets in the CDO portfolio and had a short position in more than half of those assets,” the SEC stated in an announcement Tuesday. “As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.”

That hedge fund was Magnetar Capital LLC.

A separate lawsuit was filed against Edward S. Steffelin by the SEC. Steffelin reportedly headed a team at GSCP (NJ) L.P. — an experienced investment advisory arm of bankrupt GSC Capital Corp. — that was promoted as the firm that actually assembled the CDO portfolio. Steffelin, who was reportedly hoping to land a job at Magnetar, allegedly drafted and approved marketing materials promoting GSC’s selection of the portfolio without disclosing Magnetar’s role in the selection process.

“What J.P. Morgan failed to tell investors was that a prominent hedge fund that would financially profit from the failure of CDO portfolio assets heavily influenced the CDO portfolio selection,” SEC Director of the Division of Enforcement Robert Khuzami said in the news release.

Magnetar reportedly held a $9 million long position in the CDO — hardly anything compared to its $600 million short position.

An internal e-mail message from a J.P. Morgan employee reportedly said, “We all know [Magnetar] wants to print as many deals as possible before everything completely falls apart.”

Within 10 months of its issuance, Squared CDO 2007-1 had lost most or all of its value, the SEC claims. More than a dozen mezzanine investors who had poured around $150 million into the deal lost nearly their entire investment.

On Tuesday, the SEC said the J.P. Morgan consented to a final judgment that provides for a permanent injunction from violating Section 17(a)(2) and (3) of the Securities Act of 1933. The settlement, which is still subject to court approval, also requires a disgorgement payment of $18.6 million, prejudgment interest of $2 million and a $133 million penalty.

Mezzanine investors are slated to receive $126 million of the $153.6 million total, while the Department of the Treasury will get $28 million.

“The settlement also requires J.P. Morgan to change how it reviews and approves offerings of certain mortgage securities,” the announcement stated. “In addition, J.P. Morgan’s consent notes that it voluntarily paid $56,761,214 to certain investors in a transaction known as Tahoma CDO I.”

On Monday, the National Credit Union Administration said it sued JPMorgan’s investment banking unit in U.S. District Court for the District of Kansas. The unit allegedly violated federal and state securities laws and misrepresented the sale of hundreds of securities to five failed credit unions that the NCUA took over as liquidating agent.

U.S. Securities and Exchange Commission, Plaintiff, v. J.P. Morgan Securities LLC (f/k/a J.P. Morgan Securities Inc.), Defendant.
(U.S. District Court for the Southern District of New York).

U.S. Securities and Exchange Commission, Plaintiff, v. Edward S. Steffelin, Defendant.
(U.S. District Court for the Southern District of New York).

Related Posts

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

There is No Such Thing as a Free House …

Over the past several years, those who service loans in the State of Washington(1) have seen a dramatic rise in the number of lawsuits in which delinquent borrowers seek to quiet title to their homes on the grounds that lenders are barred from foreclosing based on...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

The Mortgage Graveyard 2018 Archives

The Mortgage Graveyard 2018 Archives Failed, Struggling and Acquired Mortgage-Related Companies Non-Bank Closures 3 Bank Failures (FDIC) 0 Credit Union Failures 0 Total Mortgage-Related Failures 3  

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

MBS Statistics

MBS Statistics Non-Agency Issuance 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Private Label RMBS Issuance (S&P) $80 billion to $100 billion (est) $70 billion $34...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

Sample E-Mail

Sample E-Mail   Covering the Real Estate Finance Since 1999  Mortgage Industry News free news content | view headlines online  Advertorial Text Ad This ad includes a linked bold headline of up to 50 characters and up to 100 words of text. The ad can be...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI