Defendants systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans.The office of New York Attorney General Eric Schneiderman • Discussing the fraud lawsuit filed against JPMorgan on Monday, regarding defective loans backing securities which allegedly cost their investors billions of dollars. The lawsuit involves a firm which was owned by Bear Stearns, which JPMorgan purchased in 2008 amidst the financial crisis. (JPMorgan would like to emphasize that the charges are “historic” in nature.) The lawsuit is the first action by the the Residential Mortgage-Backed Securities Working Group, a task force which is basically going back and taking on the faults that caused the financial crisis — years after the fact.
» Why did they settle? Well, to put it simply, it was starting to turn into a PR crisis. While they disagreed with the state of New York’s portrayal of the situation, the regulatory body had some pretty decent ammo against the bank, including an exec saying this: ”You (expletive) Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.” (There are U.S. sanctions on Iran.) The bank will take corrective measures to prevent this from happening again. (EDIT: As the WSJ’s Samuel Rubenfeld points out below, the deal does not preclude a settlement from federal regulatory bodies. That’ll happen separately.)