Consumer Fraud

JPMorgan, U.S. reach record $13-billion settlement over mortgage and securities fraud

lawsuit gavel scales of justice JPMorgan, U.S. reach record $13 billion settlement over mortgage and securities fraudThe U.S. Justice Department announced Tuesday that it reached a record $13-billion agreement with JPMorgan Chase to resolve allegations that it knowingly sold faulty mortgage investments that contributed to the 2008 financial crisis. The settlement is the largest settlement between the U.S. government and a single entity in history, the Justice Department said, and the largest sum ever paid by an American company.

As part of the settlement, JPMorgan admitted it made serious misrepresentations to the public, including the investing public, about its numerous mortgage-backed securities transactions. The resolution also requires JPMorgan to provide$4 billion in relief, included in the $13-billion settlement, to homeowners stuck in underwater mortgages as a result of the JPMorgan’s unlawful conduct and the subsequent financial meltdown, including those in distressed areas of the country.

Relief to current homeowners will take various forms, including principal forgiveness, loan modifications, and efforts to reduce blight. An independent monitor will be appointed by the U.S. to make sure the company meets the obligations.

The settlement also directs JPMorgan to provide other forms of financial relief for borrowers and communities, including refinancing mortgages at lower interest rates; donating properties or bank-controlled distressed mortgages to nonprofit organizations; and issuing new mortgage loans to low-and moderate-income families hurt by the financial disaster.

Nine billion dollars collected under the agreement will go to settling federal and state civil claims. Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $4 billion to settle federal and state claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the State of Massachusetts, and $613.8 million to settle claims by the State of New York.

The Justice Department said the settlement does not absolve JPMorgan or its employees from facing possible criminal charges for their fraudulent activity.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” Attorney General Eric Holder said in a statement.  “JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”

“The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over,” Mr. Holder added. “No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”

Source: U.S. Department of Justice