It seems that
JPMorgan Chase & Co.
) problems are here to stay owing to the misconduct of Bear
Stearns Co. - acquired in 2008 - leading to the financial crisis.
On Wednesday, Reuters reported that the U.S. Department of
Justice (DOJ) has started an investigation in to this matter.
The DOJ is probing the accusations, which allege Bear Stearns of
defrauding a large number of mortgage bond investors by providing
deceptive information. The DOJ is trying to figure out whether
Bear Stearns distorted the information provided by third parties
related to the quality of mortgage loans packaged into
Last year, the DOJ had issued about a dozen subpoenas to many
financial institutions related to the sale of risky
mortgage-backed securities (MBS), including JPMorgan,
Bank of America Corporation
The Goldman Sachs Group, Inc.
). All the inquiry is being conducted under the aegis of the
Residential Mortgage-Backed Securities Working Group, which was
formed by President Barack Obama in Jan 2012 to investigate and
impeach the alleged misconducts that led to the financial crisis.
In Oct 2012, JPMorgan was accused of a civil fraud by the New
York Attorney General (AG), Eric Schneiderman. As per the
complaint, the investors suffered losses of about $23 billion as
a result of flawed documents used by Bears Stearns. The
litigation has been filed with the backing of the RMBS Working
Group. However, it is not clear whether the DOJ's investigation
would lead to a separate lawsuit or will be combined with other
regulatory bodies' inquiry.
JPMorgan has been facing litigations and probes related to MBS
sold by Bear Stearns. In Dec 2012, the U.S. regulator for credit
unions - National Credit Union Administration (NCUA) - sued its
unit, J.P. Morgan Securities, for misrepresentation in the
underwriting and sale of MBS worth over $3.6 billion.
Yet, in Nov 2012, the company resolved a lawsuit that accused
Bear Stearns of repackaging and selling residential loans to the
investors. The investigation was being conducted by the
Securities and Exchange Commission (SEC).
JPMorgan continues to encounter many other probes and lawsuits
from the investors and regulators pertaining to its role during
the recession. Along with these, the company is facing
investigations for the trading debacle, its alleged role in
rigging the LIBOR rates and for money laundering. However, on the
brighter side, the ill-effects of these are likely to be
eliminated by the strong fundamentals of the company.
Currently, JPMorgan retains a Zacks Rank #3 (Hold).
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