The SEC has settled two mortgage-backed securities actions against J. P. Morgan Chase and Credit Suisse for over $400 million. The enforcement actions arose out more than $1 billion in losses by investors during the financial crisis. Critics say that the settlements are just a cost of doing business and will not deter similar Wall Street misconduct in the future. The SEC also continues to be criticized for not naming individuals that were involved in the misconduct and for continuing its practice of allowing settling banks to insert a provision saying that they neither admit nor deny the SEC’s factual findings (“SEC, Two Banks Settle Over Loans,” Wall Street Journal).
J. P. Morgan Chase, Credit Suisse and other Wall Street banks packaged subprime loans into mortgage-backed securities and sold them to investors. The alleged misconduct involved the banks’ practice of not turning over to investors the money the banks received from mortgage originators as clawbacks for bad subprime loans. According to the SEC, Bear Stearns engaged in this practice in 156 offerings 2005 to 2007, and continued the practice after J. P. Morgan acquired Bear in 2008. Credit Suisse did the same in 75 offerings from 2005 to 2010, according to the SEC.
J. P. Morgan and Credit Suisse face other regulatory lawsuits stemming from similar misconduct. A fraud action filed by the New York Attorney General against J. P. Morgan involving mortgage-backed securities sold by Bear Stearns is pending.
The Federal Housing Finance Agency, the top federal housing regulator, sued 17 of the world’s largest financial institutions last year for fraud in selling $196 billion of mortgage-backed securities to Fannie Mae and Freddie Mac (of which $33 billion were sold by J. P. Morgan and $14 billion by Credit Suisse).
The FDIC, which insures bank deposits, sued J. P. Morgan and 10 other large banks last year for fraud in selling $388 million in mortgage-backed securities to Colonial Bank, which is now a failed bank overseen by the FDIC.
All told, the SEC has received a total of $2.6 billion in settlements flowing from the financial crisis.
Page Perry, LLC is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.