WALL STREET – JP Morgan Securities agreed today to pay $153.6 million to settle civil charges brought by the Securities and Exchange Commission that it misled investors in a complex mortgage-backed securities deal just as the housing market was starting to plummet. Under the settlement, harmed investors will receive all of their money back.
The SEC settlement came a day after NCUA sued the securities arm of the Wall Street bank over $278 million of toxic MBS it sold to four corporate credit union failures, U.S. Central FCU, WesCorp FCU, Members United Corporate FCU and Southwest Corporate FCU. NCUA also filed suit against RBS Securities for the sale of $565 million of toxic MBS to the corporates.
As part of today’s settlement, JP Morgan also agreed to improve the way it reviews and approves mortgage securities transactions.
The SEC alleges that JP Morgan structured and marketed a synthetic collateralized debt obligation, or CDO, without informing investors that a hedge fund helped select the assets included the exotic MBS and had a short position in more than half of those assets–meaning it was betting the assets would go bad. As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.
NCUA in its suit claims JP Morgan and RBS created private-label MBS it sold to the corporates by packaging subprime loans and marketing them as Triple A rated.
