J.P. Morgan will pay $296.9 million and Credit Suisse will pay $120 million to settle fraud charges brought by the Securities and Exchange Commission (SEC).
The SEC alleged that the two Wall Street firms mislead investors in offerings of residential mortgage-backed securities (RMBS).
J.P. Morgan was represented by Andrew Ceresney at Debevoise and Plimpton in New York.
Credit Suisse was represented by Peter Bresnan at Simpson Thacher & Bartlett in Washington, D.C.
“In many ways, mortgage products such as RMBS were ground zero in the financial crisis,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed. Today’s actions involving RMBS securities are a continuation of the SEC’s strong efforts to pursue wrongdoing committed in connection with the financial crisis.”
The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS 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.
J.P. Morgan also is charged for Bear Stearns’ failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts.
The proceeds from this bulk settlement practice were at least $137.8 million.
The SEC alleged that Credit Suisse failed to accurately disclose its practice of retaining cash for itself from the settlement of claims against mortgage loan originators for problems with loans that Credit Suisse had sold into RMBS trusts and no longer owned.
Credit Suisse also made misstatements in SEC filings about when it would repurchase mortgage loans from trusts if borrowers missed the first payment due. The firm made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to Credit Suisse’s practices concerning first payment defaults.
J.P. Morgan settled the SEC’s charges by consenting to pay $50.5 million in disgorgement and prejudgment interest and a $24 million penalty for the delinquency misstatements, which the SEC will seek to distribute to harmed investors in the transaction through a Fair Fund.
J.P. Morgan will pay $162,065,536 in disgorgement and prejudgment interest and a $60.35 million penalty for the bulk settlement practice misconduct, and the SEC will seek to distribute these funds to harmed investors through a separate Fair Fund.
J.P. Morgan consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining them from violating Section 17(a)(2) and (3) of the Securities Act of 1933.
Credit Suisse settled the SEC’s charges by consenting to pay $68,747,769 in disgorgement and prejudgment interest and a $33 million penalty, which the SEC will seek to distribute through a Fair Fund to harmed investors in the 75 RMBS transactions affected by the bulk settlement practice.
Credit Suisse will pay $12,256,651 in disgorgement and prejudgment interest and a $6 million penalty, which the SEC will seek to distribute through a separate Fair Fund to harmed investors in the two transactions affected by the misstatements.
Credit Suisse agreed to an order, without admitting or denying the allegations, requiring them to cease and desist from violations of Section 17(a)(2) and (3) of the Securities Act and Section 15(d) of the Securities Exchange Act of 1934.