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Mirabile Dictu! Schneiderman Files Fraud Suit Against JP Morgan Over Bear Stearns MBS

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Wellie, on schedule, we have our October surprise.

The Wall Street Journal reports that Eric Schneiderman has filed against JP Morgan for mortgage securitizations created and sold by its Bear Stearns subsidiary. I don’t yet have a copy of the claim and will update the post when I get it.

The article indicates that the Bear suit will serve as a template for other mortgage-securitization-related litigation against major originators.

From the WSJ:

Eric Schneiderman, New York’s attorney general, filed the civil lawsuit in New York state court Monday. The case is the first brought under the aegis of a law enforcement group that was formed by President Barack Obama in January to pursue alleged wrongdoing related to the financial crisis.

More cases from the group are expected to follow.

“We intend to follow up with similar actions against other sponsors and underwriters of RMBS,” said an official in the attorney general’s office.

The allegations relate to billions of dollars of subprime securities issued by Bear Stearns Cos. before the troubled firm, now owned by J.P.Morgan, collapsed in 2008. The suit alleges that losses on residential-mortgage securities issued by Bear Stearns in 2006 and 2007 alone were “astounding,” totaling $22.5 billion, or more than a quarter of the original principal balance. The action asks that the company be made to pay an undisclosed amount of damages “caused, directly or indirectly, by the fraudulent and deceptive acts.”

Note that the article indicates that the suit is filed by the New York attorney general alone (despite the “under the aegis”of the mortgage task force). Unless the legal theories and fact sets hinge on unique aspects of New York law, it seems peculiar not to have parallel filings from Federal agencies.

Of course, the timing is quite convenient, since any settlement (the probable outcome, 95% of all lawsuits are settled) will come after the election, which means the Administration gets juicy headlines and faces no pre-election exposure to disappointing outcomes.

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20 comments

  1. Black Psmith

    Also, I heard they’re going finally give us the jetpacks we were promised 40 years ago.

  2. Conscience of a Conservative

    This has been written about in the press for years and has been Wall Street chatter for at least as long if not longer. The guys involved are not CEO’s of the big banks and Bear Stearns is no more. It will be interesting ot see if they can at least go after this one. Personally I’m undecided if this makes Bear a scape goat, an easy target or a safe target Virtually every wall street firm stepped over the line. Wonder how they knew Lany Breuer would land at DOJ?

  3. Conscience of a Conservative

    This is actually not too big of a target and yet big enough that if successful buys Schneiderman, Obama and the DOJ credbility. I have to hand it to who ever picked this target, it’s a good one.

    1. Conscience of a Conservative

      Of course it’s not uninteresting that its’ a civil suit, which was leaked in advance, so nobody goes to jail and JPM shareholders foot the bill(I mean promise not to do it again fine). Schneiderman will secure a few hundred million dollars and non-admission of guilt plus a monitoring accord.

      1. EH

        Exactly. This is a bullshit gambit. Obama must not be polling as well among committed D’s as they want to be.

          1. EH

            Actually I misspoke: he’s probably not polling as well among D-leaning swing-staters. Maybe corruption-hating swings. Regardless of who’s supposed to be impressed, I’m sure it’s poll-driven.

        1. Conscience of a Conservative

          Bingo!
          Obama just showed that logic in Florida, a swing state, where he’s supporting the Tomato industry there against Mexico in a pricing dispute. Look for consumers to pay more for produce in exchange for securing Florida’s electoral votes in 2012.

      2. Lyle

        So do you go after Jimmy Cayne? Greenberg, Schwartz or who, obviously you can’t go after JPM folks since they were not there then. Given that the Bear Stearns hedge fund managers were acquitted, it may well be the judgement that you can’t get a jury to convict on the fact pattern involved.

  4. ZygmuntFraud

    At the NYTimes online, I found a story dated October 1, 2012 by Gretchen Morgenson entitled: “JPMorgan Unit Is Sued Over Mortgage Securities”. The story is in Business Day section.

    In Gretchen Morgenson’s article, the phrase: “The civil suit” has a link to a 31-page document; probably relevant.

  5. Murky

    The Statute of Limitations requires that most fraud prosecutions at the federal level take place within 5 years. As the worst of the financial frauds date back to 2007 and 2008, there is precious little time left for the SEC or the DOJ to make cases. Maybe New York has a different Statute of Limitations than the feds work with, I don’t know. But it should not have taken state or federal prosecutors 4 years on to make their cases. Schneiderman going after the bad guys now looks more like political theater than diligent prosecution of criminality.

  6. skippy

    The coffee room pantry is running low and Schneiderman mini fridge is empty. Time to get some cash positive flow!

    skippy…. the actual criminals are untouchable… cough the de-regulatory posse. CEO’s, COO, et al are like Admirals and Generals and don’t do jail time, maybe some public humiliating. ITS WAR you know!

    1. ZygmuntFraud

      A spokeswoman for JPMorgan Inc. (the mothership = the Bank Holding company) has already announced that JPM intends to fight the civil charges.

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