Late Monday, New York Attorney General Eric Schneiderman filed a lawsuit against JPMorgan Chase alleging deceptive practices related to the sale of mortgage-backed securities when the housing bubble was close to bursting.
The complaint is the first to be filed by the joint federal and state task force formed in early 2012 to hold Wall Street banks accountable for their role in the financial crisis. The civil suit against Bear Stearns (acquired by JPMorgan in 2008) alleges that the bank “kept investors in the dark” about the quality of mortgage-backed bonds it was securitizing and selling between 2005 and 2007.
The New York Times reports:
The firms made material misrepresentations about the quality of the loans in the securities, the lawsuit said, and ignored evidence of broad defects among the loans that they pooled and sold to investors.
Moreover, when Bear Stearns identified problematic loans that it had agreed to purchase from a lender, it was required to make the originator buy them back. But Bear Stearns demanded cash payments from the lenders and kept the money, rather than passing it on to investors, the suit contends.
The suit — since it is civil — cannot result in jail time for any bankers, but could result in fines for the institution.
Numerous commentators have already noted that the content of the suit is nothing new or surprising. Similar allegations of fraud have for some years been brought against major banks by investors and bond insurers. As Firedoglake’s David Dayen commented, much of the evidence in the New York A.G.’s suit directly mirrors the content of a suit against JPMorgan brought by bond insurer Ambac. It was in this case that the infamous email between two Bear Stearns employees emerged describing a mortgage-backed bond that the bank was packaging and peddling as a “sack of shit.” (The email appears again in Schneiderman’s suit.)
Despite welcoming action from the task force, critics have noted that the lawsuit falls short of bringing real accountability to Wall Street banks. Its filing, just days before the first presidential debate, has also raised a few eyebrows. As Dayen put it, “Overall, this looks like a belated PR effort, dumped before the election, to reinforce a new get-tough attitude against the big banks.”