JPMorgan Faces Legal Charge For Bear Stearns Mortgages

Bankers Were Selling A Sack Of... 'Not Very Nice Stuff'

The American mortgage crisis which triggered the global economic meltdown has led to the first legal case being brought against a financial institution.

The New York Attorney General has sued JP Morgan Chase for allegedly defrauding investors, who lost more than $20bn (£12bn) on mortgage-backed securities sold by Bear Stearns.

Bear Stearns was bought by JPMorgan Chase in March 2008, six months before Lehman Brothers collapsed.

This is the first legal action to be filed by a working group created by US President Barack Obama, designed to look into the causes of the 2008 financial crash.

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

Bear Stearns is accused of questionable underwriting standards; press reports have suggested the group charged with assessing the value of the mortgages included in mortgage-backed securities was overwhelmed by the sheer volume of work.

JPMorgan was quick to point out that the civil action related just to Bearn Stearns and that the complaint was entirely about historic conduct by Bear Stearns.

The securities concerned were packaged and sold in 2006 and 2007, well before JPMorgan bought the investment arm.

Nevertheless, the NYAG wants the company to pay an undisclosed amount of damages for investor losses "caused, directly or indirectly, by the fraudulent and deceptive acts".

The BBC's Robert Peston has seen confidential internal emails from America's biggest bank, JP Morgan Chase, which throw light on the culture of banking in the run up to the global financial crisis.

Peston told the Today programme: "What's new about this case is the detail of what went on at Bear Stearns.

"The case actually does cite emails from bankers at the time admitting that what they were trying to sell was 'a sack of...' well, not very nice stuff.

"It's the sheer scale of how bankers, in a frenzied way, ignored the appalling quality of what they were buying and flogged it to investors to generate maximum profits."

It is widely believed that this will not be the last case; President Obama’s task-force will reportedly use it as a blueprint for other cases.

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