JP Morgan Lawsuit Begins Investigations of US Financial Crisis
Published in La Republica
(Colombia) on 3 October 2012
by Marecela Chacón Sierra (link to original)
(Colombia) on 3 October 2012
by Marecela Chacón Sierra (link to original)
Translated from
by Marie Winnick.
Edited by Lydia Dallett.
BOGOTA — JPMorgan Chase, one of the most important financial institutions in the United States, is now in the eye of the hurricane following the civil lawsuit filed by New York Attorney General Eric Schneiderman. This lawsuit is the result of numerous “toxic” or high-risk mortgage frauds at the hands of Bear Stearns (the entity acquired by the banking giant).
The attorney general argues that the country’s real estate crisis generated $22.5 billion in losses between 2006 and 2007, for which JPMorgan should pay damages of approximately $20 billion.
Undoubtedly, this lawsuit could be the first of many legal challenges to be filed by authorities from the Obama administration, which has assumed the responsibility of investigating offenses committed by the country’s big banks that may have led to the U.S. financial crisis in 2008.
JPMorgan has to take on this legal battle because they acquired the United States’ fifth-largest investment bank, Bear Stearns, in May of 2008. Several months earlier, the entity had admitted to being illiquid due to a high level of defaults on high-risk mortgages and to Wall Street reports that their securities were declining in value.
Attorney General Schneiderman further added in his complaint that Bear Stearns sold residential mortgage-backed securities with the guarantee that they would be evaluated and monitored. Nevertheless, this position led investors to buy assets that the debtors were unable to cancel, eventually causing them all to fall among the victims of the mortgage crisis of 2008.
Jose Fernando Restrepo Jaramillo, the director of economic research at Interbolsa, asserts that JPMorgan’s process of acquiring Bear Stearns had many flaws. “Bear Stearns did not reform its practices nor did it fully inform its investors, so therefore, JPMorgan had to have bought the company expecting that these types of practices would be uncovered,” he said.
“Starting an investigation on a bank of this level in the United States could result in other actions of this kind, for example, against entities such as Bank of America,” he added. On that note, Jorge Bello, an international markets analyst from the firm Acciones y Valores, believes that if JPMorgan is implicated in this process, it is most likely that the entity has a contingency plan. “One of the effects that the U.S. financial markets could face, whether or not this lawsuit is successful, is that the capital markets will be directly affected,” he added.
However, Jose Manuel Restrepo, president of the Colegio de Estudios Superiores de Administracion, believes that “this situation could erode the financial industry’s confidence in any target of accusation.”
“By determining this to be an issue involving JPMorgan, there will be a danger that undermines market confidence. Therefore, it is imperative that the Obama administration makes careful decisions accordingly and ‘cleans’ the financial system,” he added.
In response to these accusations, JPMorgan assured that it will contest Schneiderman’s complaint, since the allegations refer to measures taken by Bear Stearns prior to the acquisition.
“We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record — instead relying on recycled claims already made by private plaintiffs,” the entity stated in a report.
Bear Stearns’ Record for Mortgage Fraud
The lawsuit filed by New York Attorney General Eric Schneiderman that was presented before the state Supreme Court brings up Bear Stearns’ evident record in the U.S. financial crisis. In June of 2008, two former fund managers from the financial entity were charged with misleading investors about their funds’ financial health, of which many resources were allocated for the purchase of high-risk mortgage securities.
The attorney general argues that the country’s real estate crisis generated $22.5 billion in losses between 2006 and 2007, for which JPMorgan should pay damages of approximately $20 billion.
Undoubtedly, this lawsuit could be the first of many legal challenges to be filed by authorities from the Obama administration, which has assumed the responsibility of investigating offenses committed by the country’s big banks that may have led to the U.S. financial crisis in 2008.
JPMorgan has to take on this legal battle because they acquired the United States’ fifth-largest investment bank, Bear Stearns, in May of 2008. Several months earlier, the entity had admitted to being illiquid due to a high level of defaults on high-risk mortgages and to Wall Street reports that their securities were declining in value.
Attorney General Schneiderman further added in his complaint that Bear Stearns sold residential mortgage-backed securities with the guarantee that they would be evaluated and monitored. Nevertheless, this position led investors to buy assets that the debtors were unable to cancel, eventually causing them all to fall among the victims of the mortgage crisis of 2008.
Jose Fernando Restrepo Jaramillo, the director of economic research at Interbolsa, asserts that JPMorgan’s process of acquiring Bear Stearns had many flaws. “Bear Stearns did not reform its practices nor did it fully inform its investors, so therefore, JPMorgan had to have bought the company expecting that these types of practices would be uncovered,” he said.
“Starting an investigation on a bank of this level in the United States could result in other actions of this kind, for example, against entities such as Bank of America,” he added. On that note, Jorge Bello, an international markets analyst from the firm Acciones y Valores, believes that if JPMorgan is implicated in this process, it is most likely that the entity has a contingency plan. “One of the effects that the U.S. financial markets could face, whether or not this lawsuit is successful, is that the capital markets will be directly affected,” he added.
However, Jose Manuel Restrepo, president of the Colegio de Estudios Superiores de Administracion, believes that “this situation could erode the financial industry’s confidence in any target of accusation.”
“By determining this to be an issue involving JPMorgan, there will be a danger that undermines market confidence. Therefore, it is imperative that the Obama administration makes careful decisions accordingly and ‘cleans’ the financial system,” he added.
In response to these accusations, JPMorgan assured that it will contest Schneiderman’s complaint, since the allegations refer to measures taken by Bear Stearns prior to the acquisition.
“We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record — instead relying on recycled claims already made by private plaintiffs,” the entity stated in a report.
Bear Stearns’ Record for Mortgage Fraud
The lawsuit filed by New York Attorney General Eric Schneiderman that was presented before the state Supreme Court brings up Bear Stearns’ evident record in the U.S. financial crisis. In June of 2008, two former fund managers from the financial entity were charged with misleading investors about their funds’ financial health, of which many resources were allocated for the purchase of high-risk mortgage securities.
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