JP Morgan sued by New York Attorney General over mortgage-backed securities

New York Attorney General Eric Schneiderman has filed a lawsuit against JP Morgan Chase for fraud over faulty mortgage-backed securities packaged and sold by the former Bear Stearns.

JP Morgan criminal CEO Jamie Dimon
JP Morgan criminal CEO Jamie Dimon.

It was the first action to come out of a working group created by President Barack Obama to go after alleged wrongdoing in the financial crisis, Reuters reported.

JPMorgan, which bought one-time rival Bear Stearns for $2 a share in March 2008, said in a statement it intended to contest the allegations.

The lawsuit alleged a “systematic abandonment of underwriting guidelines” in the selling of home loans that went into securities peddled by Bear Stearns.

In its statement, JPMorgan noted that the allegations concern actions by Bear Stearns before it was acquired by JPMorgan.

“The NYAG civil action relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the US Government. This complaint is entirely about historic conduct by that entity,” the statement said.

Mr Schneiderman, a co-chair of the task force, told Reuters on September 20 his office would take action shortly and that he expected his federal counterparts on the task force to do so as well.

The Residential Mortgage-Backed Securities Working Group was formed to probe the pooling and sale of risky mortgages in the run-up to the 2008 financial crisis.

Mr Obama, who is scheduled to debate with his Republican rival Mitt Romney on Wednesday night, said in January he was creating the group to “hold accountable those who broke the law” and “help turn the page on an era of recklessness”.

The task force includes the Justice Department, the Securities and Exchange Commission, the Department of Housing and Urban Development and the Internal Revenue Service.