JPMorgan sued over Bear Stearns' mortgage bonds
The government agency overseeing credit unions is suing J.P. Morgan Securities, the investment arm of JPMorgan Chase, over the sale of $3.6 billion in mortgage bonds that collapsed in value after the 2008 financial crisis. It's the National Credit Union Association's largest lawsuit yet.
The NCUA's suit stems from actions by Bear Stearns, the failed bank bought by JPMorgan in early 2008. The NCUA alleges that Bear Stearns misrepresented or hid information about mortgage-backed bonds sold to four corporate credit unions, breaking federal and state securities laws. The complaint says that many of the mortgages backing the bonds were bound to fail because underwriting standards were "abandoned." When the bonds later dropped in price, the credit unions suffered steep losses and eventually collapsed.
"Firms like Bear Stearns acted unfairly by ignoring the rules for underwriting," said NCUA board Chairman Debbie Matz in a statement. "They packaged these securities and then told buyers the paper was sound. When the securities plunged in value, we learned the truth."
The four federal credit unions were US Central, Western Corporate, Southwest Corporate and Members United Corporate. NCUA oversees their liquidation. The lawsuit was filed in a federal district court in Kansas.
A representative for New York-based JPMorgan Chase & Co did not immediately respond to a request for comment.
The NCUA has eight similar lawsuits pending against other banks, including subsidiaries of Barclays, the Royal Bank of Scotland and UBS, among others.