August 9, 2013
The Department of Justice (DoJ) is conducting criminal and civil investigations on JP Morgan Chase & Co (JPM) after they announced their quarterly earnings.
Bank of America (BoA) is also under investigation from the DoJ and the Security Exchange Commission (SEC).
According to documents, JPM must respond to “parallel investigations being conducted by the Civil and Criminal Divisions of the United States Attorney’s Office for the Eastern District of California relating to mortgage backed securities (MBS) offerings securitized and sold by the Firm and its subsidiaries.”
Similarly, BoA was warned by the DoJ last week in relation to “one or two jumbo prime securitizations.” The DoJ and SEC intend to file both criminal and civil charges against the bank who sold alleged AAA residential mortgages from borrowers who were targeted by the bank because they had unverifiable income.
Between 2005 and 2007, customers were used by JPM and BoA to participate in this MBS scheme.
BoA was charged with defrauding investors to the tune of $850 million in MBS. The charge was filed in a North Carolina federal court.
Lawrence Grayson, a spokesperson for BoA, said it was the housing bubble bursting that caused the investments to “go sour” and there is no liability from the bank in the matter.
Grayson claimed: “These were prime mortgages sold to sophisticated investors who had ample access to the underlying data, and we will demonstrate that. The loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions. We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result.”
BoA sold those MBS to:
• Wells Fargo
• The Federal Home Loan Bank of San Francisco
• Other “sophisticated” investors
The investors were promised that these mortgages were a safe investment. The bank never divulged that the “underlying loans were defaulting at high rates.”