JP Morgan and Credit Suisse Settle With SEC For $417 Million

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JP Morgan and Credit Suisse settled their cases with the Securities and Exchange Commission (SEC) on Friday regarding charges of fraudulent bundling and sale of mortgage securities. The charges encompassed transactions from 2005 to 2010 for Credit Suisse and 2005 to 2008 for JP Morgan Chase.

The SEC announced yesterday:

“The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS [residential mortgage-backed security] offering in which it was the underwriter. J.P. Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans.”

When combined with a $137.8 million settlement for “Bear Stearns’ failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans,” JP Morgan ended up paying $296.9 million to settle all of the charges against them.

Allegedly, JP Morgan had bundled $1.8 billion of delinquent loans in December of 2006 and knowingly misrepresented their value and integrity to investors. The SEC wantd to disburse the awarded funds to the investors who were harmed by the various forms of malpractice.

Credit Suisse allegedly swindled investors in 75 different residential mortgage-backed security transactions:

“From 2005 to 2010, Credit Suisse frequently negotiated bulk settlements with loan originators in lieu of a buy-back of loans that were owned by the RMBS trusts. Credit Suisse kept the bulk settlement proceeds for itself and failed to disclose the practice to investors who owned the loans.”

Allegations of this practice will cost Credit Suisse $68.7 million in disgorgement and $33 million to be distributed to harmed investors. In sum, Credit Suisse agreed to a $120 million settlement. Combined with the settlement of JP Morgan, both totaled close to $417 million.

The settlements for both JP Morgan and Credit Suisse neither admitted nor denied guilt and are part of an ongoing investigation into the housing market crash of 2008. The investigative team consists of not only the SEC, but also a task force assembled by President Obama called the RMBS Working Group.