NY sues JPMorgan over Bear Stearns mortgage securities
By Karen Freifeld
NEW YORK (Reuters) - New York Attorney General Eric Schneiderman filed a civil fraud lawsuit against JPMorgan Chase & Co (JPM.N: Quote) on Monday over mortgage-backed securities packaged and sold by Bear Stearns.
It was the first action to come out of a working group created by President Barack Obama earlier this year to go after wrongdoing that led to the financial crisis.
JPMorgan, which bought Bear Stearns for $10 a share in March 2008, said in a statement it would contest the allegations.
The suit accuses Bear Stearns of failing to ensure the quality of loans underlying residential mortgage-backed securities it packaged and sold in 2006 and 2007. Investors lost more than $22.5 billion on more than 100 of those securities, or one-quarter of their original value, the lawsuit said.
The lawsuit said there were "serious long-standing concerns" about the quality of reviews done by Bear Stearns, and that defects uncovered among the loans sold to investors were largely ignored.
The due diligence process was compromised "in order to increase their volume of securities", the complaint says.
It also alleged a "systematic abandonment of underwriting guidelines".
JPMorgan noted in its statement that the allegations concern actions by Bear Stearns before the investment bank was acquired by JPMorgan. Continued...