JPMorgan Chase & Co. reached a preliminary settlement to pay $500 million to resolve a lawsuit over $17.6 billion of faulty mortgage-backed securities issued by Bear Stearns, according to a person familiar with the agreement who asked not to be named because the information isn't public.
A group of pension funds which sued over the securities said in a court filing yesterday that the "settlement in principle" isn't final and the parties plan to seek preliminary approval by Feb. 2.
The pension funds, led by the Public Employees' Retirement System of Mississippi and the New Jersey Carpenters Health Fund, sued in September 2008 in Manhattan federal court over the securities, which Bear Stearns issued in 2006 and 2007.
In 2012, JPMorgan Chief Executive Officer Jamie Dimon said he did the U.S. a favor by buying Bear Stearns and that he might not go through with it again because of how much the deal ultimately cost. At the time, Dimon estimated losses tied to Bear Stearns at as much as $10 billion.
JPMorgan completed its rescue of Bear Stearns after the Federal Reserve agreed to take control of a $30 billion portfolio of mortgage-linked Bear Stearns assets. The purchase of the securities firm, which was facing an exodus of clients and lenders, was about $1.5 billion, Dimon has said.
Eric Schneiderman, New York state's attorney general, sued JPMorgan in 2012, claiming that Bear Stearns businesses had deceived mortgage-bond investors about defective loans backing the securities they bought. The result was "monumental losses" that haven't been fully identified, Schneiderman said.
JPMorgan reached a $13 billion federal-state settlement of claims over the mortgage-bond sales, of which $613 million went to New York to resolve the state's allegations against the bank.
According to the pension funds in the class-action case, offering documents shown to investors contained false and misleading statements about the securities, holding them out as the highest quality and with low risk.
"As a result of the untrue statements and omissions, plaintiffs and the class purchased certificates that were far riskier than represented, not of the 'best quality' and not equivalent to other investments with the same credit ratings," the group said in its complaint.
JPMorgan has had some success in challenging lawsuits over actions by Bear Stearns. In February, the bank won dismissal of a suit brought by hedge fund SRM Global claiming it had lost more than $200 million tied to its reliance on Bear Stearns' representations about the value of mortgage-backed and asset- backed securities.
In that case, a New York judge ruled SRM took too long to sue, and that the fund had failed to adequately prove it relied upon the alleged misrepresentations in Bear Stearns' 2006 regulatory filings.
The case is In Re: Bear Stearns Mortgage Pass-Through Certificates Litigation, 1:08-cv-08093, U.S. District Court for the Southern District of New York (Manhattan).