August 8, 2013 / 4:05 PM / 4 years ago

U.S. probe focuses on mortgage bonds that JPMorgan created, not acquired

Two men walk past the front desk inside of the headquarters of JPMorgan Chase & Co bank in New York, March 15, 2013. REUTERS/Lucas Jackson

(Reuters) - U.S. prosecutors investigating JPMorgan Chase & Co (JPM.N) for allegedly violating securities laws are looking at mortgage bonds created by the bank itself, and not by companies it bought, according to a source familiar with the matter.

JPMorgan disclosed on Wednesday that was the subject of investigations by the criminal and civil divisions of the U.S. Attorney’s Office for the Eastern District of California, which includes the state capital and Central Valley region in which communities were hit hard by the collapse of house prices.

JPMorgan bought Bear Stearns and Washington Mutual during the financial crisis in 2008. Both those firms had also created mortgage bonds that contributed to the housing bubble and have since been subjects of lawsuits as well. But the current criminal probe focuses on bonds JPMorgan created, the source said.

In May, JPMorgan was informed the office’s civil division had made a preliminary conclusion that the firm violated federal securities laws in offerings of subprime and Alt-A residential mortgage securities during 2005 to 2007, the company said in a quarterly filing with the Securities and Exchange Commission.

The investigation is part of drive by President Barack Obama to hold companies responsible for breaking the law in financing the housing bubble that caused the 2007-2008 financial crisis and the Great Recession.

Bank of America Corp (BAC.N) was sued by federal prosecutors on Tuesday for alleged civil violations of laws over the sale of bonds backed by jumbo mortgages.

It also adds a new hurdle to JPMorgan CEO Jamie Dimon’s campaign to restore the bank’s reputation for controlling risks after losing more than $6.2 billion in 2012 on its so-called “London Whale” derivatives trades.

Reporting by David Henry in New York; Editing by Doina Chiacu

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