JP Morgan Sued Over $3.6B of Bear Stearns MBS

by devteam December 18th, 2012 | Share

The National Credit Union Administration (NCUA) has brought suit againstrnJ.P. Morgan Securities and Bear, Stern and Company over the failure of four corporaterncredit unions.  The suit, filed in FederalrnDistrict Court in Kansas alleges violations of federal and state securitiesrnlaws in the sale by Bear, Stearns of $3.6 billion in mortgage-backed securities</a(MBS) to the failed institutions. </p

NCUA charges that Bear, Stearns made numerous misrepresentations andrnomissions of material facts in the offering documents of the securities.  Underwriting guidelines in the offeringrndocuments were “abandoned” the complaint charges, and the misrepresentationsrncaused the credit unions to believe the risk of loss was minimal.  In fact, these securities were “significantlyrnriskier than represented” and “routinely overvalued.” The faulty securities, NCUArncontends, “were destined from inception to perform poorly.”  J.P. Morgan is party to the suit because itrnbought Bear Stearns at a virtual fire sale in 2008 when it became apparent thatrnthe securities firm could not survive because of its mortgage-related losses.  </p

The four credit unions that bought the securities and subsequently failedrnwere U.S. Central, Western Corporate, Southwest Corporate and Members UnitedrnCorporate federal credit unions.  NCUArninsures its member credit unions through a fund similar to that of the FederalrnDeposit Insurance Corporation and it said the failures caused significantrnlosses to the credit union system.</p

“Bear, Stearns was one of several Wall Street firms that sold faultyrnsecurities to corporate credit unions, leading to their collapse and enormousrnlosses across the industry,” said NCUA Board Chairman Debbie Matz. “Firms likernBear, Stearns acted unfairly by ignoring the rules for underwriting. Theyrnpackaged these securities and then told buyers the paper was sound. When thernsecurities plunged in value, we learned the truth. NCUA is now working to holdrnthese underwriters accountable and secure recoveries on behalf of federallyrninsured credit unions.”</p

NCUA has eight similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities, and Wachoviarnbut said the Bear, Stearns suit is the largest it has ever brought “to date.”</p

NCUA said that recoveries from the various legal actions will further reducernthe total losses suffered through the institutions’ failures.  These losses must be paid from the TemporaryrnCorporate Credit Union Stabilization Fund which must be repaid throughrnassessments against all federally insured credit unions</p

 “NCUA and credit unions havernsuccessfully worked together to restore stability to the credit union system,”rnMatz said. “Now we are holding responsible parties like Bear, Stearnsrnaccountable for their actions. It’s the right thing to do.”

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