JPMorgan case to be followed by more suits
New York Attorney General Eric Schneiderman, right, with Housing and Urban Development Secretary Shaun Donovan tells a news conference in Washington, D.C., on Tuesday that other banks are in regulators' sites for faulty mortgage-backed products that contributed to the 2008 banking meltdown. "We are looking forward to more cases," Schneiderman said. Credit: AP
Firms responsible for the 2008 financial crisis will face more government lawsuits, federal and state officials said Tuesday, a day after New York State sued JPMorgan Chase & Co. charging fraud over mortgage-backed securities packaged and sold by Bear Stearns.
The lawsuit accused Bear Stearns, which was bought by JPMorgan through a government-assisted transaction in early 2008, of deceiving investors by leading them to believe the quality of loans in the mortgage-backed securities had been carefully evaluated, even though they had not been.
Bear Stearns systematically ignored defects in the loans and kept investors in the dark, according to the suit by New York Attorney General Eric Schneiderman.
New York's suit is the first action to come from a federal-state working group created this year. The state wants JPMorgan to return profits obtained through the alleged fraud by Bear Stearns and pay damages.
Schneiderman and federal authorities announced the case during a news conference in Washington. They said more actions were coming, although they declined to provide specifics.
"We are looking forward to more cases," Schneiderman said at the U.S. Justice Department's headquarters.
The officials defended the decision to go after JPMorgan, even though the federal government encouraged and was heavily involved in the investment bank's purchase of Bear Stearns. "The liability traveled with the company, so it would be far worse for us to send the message that this kind of fraud is to be tolerated," Schneiderman said. "No one is above the law."
The suit is the latest headache for JPMorgan, which also faces separate investigations and investor pressure from a $5.8-billion trading loss that sprung from a botched hedging strategy.
JPMorgan said in a statement late Monday that it would contest the allegations, and noted that the suit does not target JPMorgan's activity in the lead-up to the crisis.
The suit "relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the U.S. government. This complaint is entirely about historic conduct by that entity," the statement said.
The announcement comes weeks before the presidential election, but the Justice Department said there was no political connection on the timing of the case.
"When cases are mature and ready to be brought, we bring them," said acting Associate Attorney General Tony West.
