JPMorgan Chase

CFTC Settles Charges Against JPMorgan Chase for “London Whale” Swaps

On October 16, CFTC brought and settled charges of employing a manipulative device in connection with the JPMorgan Chase trading of certain credit default swaps (CDS), in violation of the new Dodd-Frank prohibition against manipulative conduct.  JPMorgan admitted fault and will pay a $100 million civil penalty.  ReleaseOrder.

JPMorgan Chase to Pay Penalties for Oversight Deficiencies

On September 19, JPMorgan Chase entered into a consent Order of Assessment of a Civil Money Penalty with the Fed, the OCC, the SEC and the Financial Conduct Authority of the United Kingdom.  The penalties issued by the agencies total approximately $920 million.  The fine resulted from the deficiencies identified by the regulators in JPMorgan Chase’s risk management oversight, model validation, internal financial reporting and internal audit, and failure to elevate certain issues to the attention of the board of directors.  In a separate action, the OCC and CFPB ordered JPMorgan Chase to refund $309 million for illegal credit card practices and to pay $80 million in civil penalties.  Fed ReleaseCFPB ReleaseFed Consent OrderOCC Consent Order.

Ambac’s RMBS Claims Against EMC and JPMorgan Dismissed in Part

On June 13, Justice Charles E. Ramos of the Supreme Court of the State of New York dismissed in part an action brought by Ambac Assurance Corp. (Ambac) against EMC Mortgage and JPMorgan Chase & Co.  Ambac’s case relates to seven securitizations that it wrapped in 2006.  Justice Ramos dismissed Ambac’s claims for breach of contract, holding that Ambac did not have standing to enforce the “sole remedy” of loan repurchase provided for by the transaction documents.  Justice Ramos denied defendants’ motion to dismiss Ambac’s fraud claim, concluding that there are factual issues as to whether Ambac justifiably relied on the alleged misrepresentations.  Decision.

Motions to Dismiss FHFA’s Claims in Two Actions Granted in Part and Denied in Part

In two separate orders, Judge Cote of the Southern District of New York granted in part and denied in part motions to dismiss claims brought by the FHFA arising out of Fannie Mae’s and Freddie Mac’s alleged purchase of (1) $33 billion of RMBS from several JPMorgan, Bear Stearns, and Washington Mutual entities and (2) $24.9 million of RMBS from several Merrill Lynch entities.  Both actions are among the seventeen brought by the FHFA asserting claims under Sections 11, 12, and 15 of the Securities Act of 1933 and certain state securities laws, and both are also among the six actions that include claims of common law fraud.  

On November 5, in the JPMorgan case, the Court granted certain of the underwriter defendants’ motions to dismiss the state securities law claims as time-barred and inadequately pled.  The Court found that the FHFA’s allegations concerning departures from underwriting guidelines – which were based upon an alleged “forensic review” of loan files, allegations concerning investigations by private entities and government actors, confidential witness allegations, and the rise in defaults in the underlying loans – were sufficient to state a claim, including as to the element of scienter.  With respect to the FHFA’s allegations concerning alleged owner-occupancy and loan-to-value ratio misstatements, the Court reached different results depending on whether the security at issue involved JPMorgan, Bear Stearns, or Washington Mutual.  As to JPMorgan certificates, the FHFA relied solely on the disparity between the ratios as reported in the offering documents and the purported ratios resulting from the FHFA’s analysis, which the Court concluded could not, on their own, establish scienter.  As to the Washington Mutual certificates, the Court found that the FHFA pled adequate additional facts to establish scienter as to the loan-to-value ratios, but not as to owner-occupancy.  As to the Bear Stearns certificates, the Court found sufficient allegations of scienter as to all alleged misrepresentations.  Addressing the defendants’ remaining arguments, the Court found that the FHFA adequately pled justifiable reliance and loss causation, that the FHFA’s claims were not time-barred, and the JPMorgan was an appropriate successor-defendant to Washington Mutual.   JPMorgan Order.

On November 8, in the Merrill Lynch case, the Court likewise granted defendants’ motions to dismiss as to the fraud claims based on alleged owner-occupancy and loan-to-value ratio misstatements for failure to adequately allege scienter.  The Court denied all remaining aspects of the motion to dismiss.  In particular, the Court permitted the FHFA to pursue claims against an individual defendant whose signature appeared on an initial shelf registration but not on the amended registration statement filed 18 days later and that was operative when the securities were issued.  The Court also found that the FHFA was not required to plead reliance to state its claims under the Washington, D.C. securities statute and the the FHFA could pursue its demands for rescission and punitive damages.  Merrill Lynch Order.

New York Attorney General Sues Bear Stearns and JPMorgan Chase

On October 1, New York Attorney General Eric T. Schneiderman filed suit against Bear Stearns & Company, now a unit of JPMorgan Chase, in New York state court in Manhattan.  This is the first suit filed by a member of the joint federal and state Residential Mortgage Backed Securities Fraud Working Group, which was formed in January and is co-chaired by Schneiderman.  The complaint asserts two claims under New York law: securities fraud under Article 23-A of the General Business Law (the Martin Act) and persistent fraud or illegality under Section 63(12) of the Executive Law.  The complaint alleges that Bear Stearns ignored defects in mortgage loans underlying its RMBS, made material misrepresentations to investors about the quality of due diligence, ignored defects identified by due diligence firms, and failed to perform post-purchase quality review.  Losses, according to the complaint, total approximately $22.5 billion across more than 100 subprime and Alt-A securitizations which the defendants sponsored and underwrote in 2006 and 2007.  Complaint.

German Bank Sues JP Morgan Over $2.1 Billion in RMBS

On November 21, 2011, German bank Bayerische Landesbank (“BayernLB”) filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities, including several former Washington Mutual and Bear Stearns entities, seeking approximately $2.1 billion in damages in connection with its purchase of certificates in 57 RMBS offerings. BayernLB asserts causes of action for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and successor and vicarious liability, based on allegations that JPMorgan concealed the poor quality of loans underlying those securities and provided misinformation to credit rating agencies. Complaint.

Plaintiffs Firm Announces “Investigation” Into Various Banks Regarding FHA Mortgage Insurance

On May 4, 2011, the law firm Keller Rohrback, which currently represents the Federal Home Loan Banks of Seattle and Chicago in various RMBS cases, announced an investigation into a number of banks and mortgage lenders for violations stemming for those banks’ status as Direct Endorsement Lenders for the Federal Housing Administration (“FHA”). According to the announcement, each of the banks, including JPMorgan Chase, Bank of America, Bear Stearns Residential Mortgage, Washington Mutual, Citigroup, Countrywide, and HSBC, received insurance from FHA for the mortgages it originated. The investigation focuses on the banks’ mortgage lending practices, which Keller Rohrback asserts were lax and riskier than FHA’s standards allowed. Specifically, the law firm intends to review the banks’ due diligence standards, evaluations of borrower income, and property appraisals. The U.S. Department of Justice earlier this week commenced an action in the Southern District of New York against Deutsche Bank alleging similar practices. Release.

OCC Issues Consent Orders Against Eight Major Banks, Lender Processing Services, and MERSCORP for Foreclosure Practices

On April 13, 2011, the Office of the Comptroller of the Currency (“OCC”) announced consent orders and enforcement actions against eight national bank mortgage servicers (Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo) and two third-party servicers (Lender Processing Services and subsidiaries, and MERSCORP and subsidiaries (including MERS)). The enforcement actions require each servicer to correct claimed deficiencies identified in the OCC’s 2010 Fourth Quarter review, make improvements in servicing and foreclosure processing practices, establish oversight and control over third-party vendors (including outside legal counsel that provide default management or foreclosure services), and perform a multi-faceted review of foreclosure actions from January 1, 2009 to December 31, 2010 through an independent firm. The independent review must assess whether the servicers complied with federal and state laws regarding foreclosures and whether they caused any financial injury to borrowers. The servicers must also remedy all financial injuries to borrowers identified in the independent review. The consent orders do not preclude civil money penalties, which the OCC may assess at a future date. OCC Press Release. Interagency Review of Foreclosure Practices.