J. P. Morgan

Summary Judgment Denied in Monoline Insurer Lawsuit Against J.P. Morgan

On June 6, 2016, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County denied J.P. Morgan’s motion for summary judgment on MBIA’s fraudulent concealment claim. The court had previously granted summary judgment in favor of J.P. Morgan on MBIA’s fraud claim, but permitted MBIA to amend its complaint to add a fraudulent concealment claim that J.P. Morgan failed to disclose complete and accurate third-party due diligence results regarding the collateral underlying the securitization. First, Scheinkman rejected J.P. Morgan’s argument that it did not owe MBIA an affirmative duty to disclose the results of the due diligence review. The Court held that the bid letter between J.P. Morgan and MBIA evinced a contractual relationship between the parties, and that even in the absence of such a relationship, J.P. Morgan was acting as an agent for the deal’s sponsor, who was obligated to share the due diligence results with MBIA.  Second, Scheinkman held that issues of fact precluded summary judgment on actual reliance, because withholding, disguising the significance, and delivering an altered version of due diligence results may have thwarted MBIA’s ability to protect itself.  Last, the Court held that whether MBIA justifiably relied on J.P. Morgan’s failure to disclose the due diligence results is a question for the jury.  Decision & Order.

Court Denies CIFG’s Attempt to Refile CDO Suit Against J.P. Morgan

On September 23, Justice Marcy S. Friedman of the New York Supreme Court for New York County denied CIFG’s motion to amend its complaint against J.P. Morgan in a case the Court previously dismissed in June.  CIFG had originally brought suit claiming two causes of action against J.P. Morgan: 1) that J.P. Morgan had made material misrepresentations to induce CIFG to issue insurance on credit default swaps guaranteeing two collateralized debt obligations, and 2) for common-law fraud.  In its June dismissal order, the Court dismissed the first cause of action but allowed CIFG to attempt to replead its fraud claim.  CIFG’s proposed amended complaint included two causes of action, the first of which the Court held was identical in all material respects to the previously dismissed first cause of action.  As to the proposed second cause of action for common law fraud, the Court noted that while CIFG had added additional allegations to attempt plead the action with particularly, it had failed to address whether a common law fraud claim could be maintained based on alleged misrepresentations made by non-insured Bear Stearns about the collateral underlying the CDOs.  The Court granted CIFG leave to amend to attempt to cure this issue.  Order.

FCA Fines J.P. Morgan Over £3.076M Over Systems and Control Failings

On May 23, the new UK conduct regulator, the Financial Conduct Authority (FCA), fined J.P. Morgan for failings in its wealth management business that persisted for two years until 2012.  Specifically, the bank failed to retain and update information on client objectives and risk tolerance.

The investigation, which originally began under the FSA, found that there had been a serious risk of inappropriate investments being made on behalf of clients, as there had been no systems in place to monitor whether appropriate advice had been given.  However, the investigation was unable to find any actual detriment to clients.

The fine levied reflects a 30% discount for cooperation and early settlement by J.P. Morgan.  FCA Notice.

District Court Vacates Dismissal, Remands RMBS Suit Against J.P. Morgan to State Court

On May 17, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York vacated his earlier “bottom line” summary judgment decision dismissing Dexia NV/SA’s (Dexia) suit against J.P. Morgan Chase Bank (J.P. Morgan) and its various affiliates.  Dexia alleged fraud, negligent misrepresentation and successor liability claims related to the sale of $774 million in residential mortgage-backed securities.  J.P. Morgan had removed the action from state court claiming federal jurisdiction primarily under the Edge Act as well as under the Court’s bankruptcy jurisdiction.  The Edge Act, a statute enacted in 1919, provides for federal jurisdiction if two conditions are met: (i) an international banking and financial corporation organized under the laws of the United States (an Edge Act corporation) must be a party and (ii) the lawsuit must involve an offshore banking transaction.  Although the Court initially denied plaintiffs’ motion to remand based on the Edge Act, Judge Rakoff vacated that decision based on a recent Second Circuit decision requiring the offshore banking transaction to be engaged in by the Edge Act corporation.  Because J.P. Morgan did not originate the securitized loans or otherwise engage in the foreign banking transactions, the court concluded the Edge Act did not apply, and it could not exercise jurisdiction.  Opinion.

District Court Grants J.P. Morgan’s Motion for Summary Judgment Against Dexia in RMBS Suit

On April 2, Judge Jed Rakoff of the United States District Court for the Southern District of New York largely granted J.P. Morgan’s motion for summary judgment in RMBS litigation brought against it by Dexia, a Belgian bank, and FSA Asset Management.  In a two-page order, the district court dismissed with prejudice all of Dexia’s claims against the defendants, but permitted FSA’s claims as to five RMBS certificates to proceed.  The court indicated that it would issue a written opinion explaining the reasons for these rulings in due course.  Order.

District of Massachusetts Denies in Part JP Morgan’s Motion to Dismiss RMBS Investor Suit

On February 13, Judge Rya W. Zobel of the District of Massachusetts dismissed in part, but largely sustained, an investor suit brought by Capital Ventures International (CVI) against J.P. Morgan and certain of its subsidiaries in connection with four RMBS offerings underwritten by J.P. Morgan and Bear Stearns.  CVI brought the suit under the Massachusetts Uniform Securities Act (MUSA), claiming that the defendants violated MUSA by making material misstatements in the offering materials.  The court dismissed one of the claims against the RMBS sponsors, finding an insufficient relationship between the sponsors and CVI to support liability under section 410(a)(2) of MUSA.  The court also dismissed one of the claims against the RMBS depositors for lack of control required under 410(b) of MUSA.  The court otherwise denied the motion to dismiss with respect to all other parties and claims, finding (1) that there were sufficient allegations of material misstatements against the RMBS underwriters, including allegations concerning underwriting guidelines, appraisals and LTV/CLTV ratios, owner-occupancy status, and credit ratings, (2) the claims were not time-barred, (3) the depositors could be liable as issuers under SEC Rule 159A, and (4) sufficient allegations of control by the RMBS sponsors over the depositors.  Decision.

Texas Bank Sues Underwriters and Investment Advisor Over RMBS

On November 11, 2011, Town North Bank NA filed a complaint in the federal district court for the Northern District of Texas against UBS Financial Services Inc., Morgan Stanley & Co. LLC, Merrill Lynch & Co., LLC, J. P. Morgan Securities LLC as successor to Bear Stearns & Co., Inc., and Shay Financial Services, Inc. (Town North’s investment advisor). Town North seeks $113 million in damages, alleging that the defendants misrepresented that the mortgage loans underlying RMBS that it purchased complied with underwriting guidelines, overstated the borrowers’ capacity to repay their mortgage loans, and failed to disclose the quality of loans underlying the securities and their risk of loss. Town North asserts causes of action under Section 10(b) of the Securities and Exchange Act, state law fraud, and breach of fiduciary duty (against Shay Financial only). Complaint.

Syncora Guarantee Inc. Sues J.P. Morgan Securities LLC as Successor to Bear Stearns & Co.

On June 6, 2011, Syncora Guarantee Inc. filed a complaint in New York state court against J.P. Morgan Securities LLC as successor to Bear Stearns & Co. Syncora’s complaint alleges that Bear, as underwriter of the GreenPoint Mortgage Funding Trust 2007-HE1, made false and misleading statements about the loan pool that fraudulently induced Syncora to issue a financial insurance gauranty policy for the trust. Further, Syncora alleges that J.P. Morgan has since interfered with the originator’s contractual obligation to repurchase loans that breached the originators representations and warranties. Syncora alleges it has paid more than $320.2 million in unreimbursed insurance claims owing to $404 million in losses for the GreenPoint Trust. Notably, Syncora alleges that it uncovered the evidence it cites to support its claim through ongoing federal litigation against the originator, EMC Mortgage Corp. Syncora Decision.

Massachusetts Mutual Life Insurance Co. Files Two New RMBS Actions

On May 6, 2011, Massachusetts Mutual Life Insurance Co. filed two complaints in the U.S. District Court for the District of Massachusetts, both alleging violations of the Massachusetts Uniform Securities Act in connection with MassMutual’s purchases of RMBS. The first action concerns RMBS sponsored by Impac Funding Corporation, and asserts claims against Impac, one of its affiliates, two of its officers who signed the relevant registration statements, and J.P. Morgan Securities as successor-in-interest to two of the RMBS underwriters. The second action concerns RMBS originated by non-party American Home Mortgage Investment Corp. (“AHM”), and asserts claims against one of the RMBS sponsors, several depositors and underwriters, and several of AHM’s and Bear Stearns’s officers who signed the relevant registration statements. MassMutual alleges that in marketing the sale of the RMBS, defendants misrepresented that the underlying loans were prudently underwritten and had certain characteristics, including specific loan-to-value ratios and owner-occupancy statistics. MassMutual v. Impac Complaint. MassMutual v. Goldman Complaint.

Motion to Dismiss MBS Action Granted in Part

On November 30, 2010, Judge Jed Rakoff of the United States District Court for the Southern District of New York granted ABN AMRO’s and J.P. Morgan’s motions to dismiss claims under Section 11 of the Federal Securities Act of 1933. Although the Court had sustained Section 11 claims against other underwriters on other RMBS in the same litigation, the Court noted that the plaintiffs had not alleged a materially false or misleading statement by ABN AMRO or J.P. Morgan. It stated that their offering “differed materially from the others at issue in that no loan originator contributed more than 20% of the loans” to the offering pool, and, accordingly, no disclosures regarding the underwriting practices of any loan originator were required or included in the offering documents. Decision.