New York Attorney General Eric Schneiderman has filed a civil lawsuit against JP Morgan Chase over allegations of fraud in deals made leading up to the brink of the housing bubble burst. The case, which is the first to be filed by the Justice Department's Federal Mortgage Task Force since it was created, has been criticized as a superficial step, designed to impress voters ahead of US presidential elections.
Schneiderman announced the suit on Tuesday. The complaint was filed against Bear Stearns & Co, now under the umbrella of JP Morgan Chase, for allegedly defrauding investors who bought sour mortgage-backed securities leading up to the mortgage crisis.
Schneiderman, working as part of the Justice Department's federal mortgage task force known as the Residential Mortgage-Backed Securities Working Group, claims that the bank “kept investors in the dark” about the security of the deals, which were sold between 2005 and 2007.
As the New York Times reports, previous lawyers who have battled major banks on behalf of mortgage investors said the Attorney General's action was welcome. Gerald H. Silk, a lawyer at Bernstein Litowitz Berger & Grossmann in New York, said: “The government’s action represents a complete validation of the cases brought by investors who were duped by the fraudulent sale of mortgage-backed securities by JPMorgan, WaMu and Bear Stearns.”
However, the civil suit could result in fines for the bank but the fines could be limited, and the case will not result in jail time for any of the major players.
Writing for FireDogLake, David Dayen expressed skepticism over the strength of the case, as well as the timing of what he describes as a seemingly superficial suit:
Just because a suit gets filed, doesn’t mean it will lead to anything approaching accountability. The suit is purely civil and does not quantify damages; all it says is that investors lost $22.5 billion on the bad securities in the time frame under the Martin Act’s statute of limitations, from late 2006 to 2007. And Schneiderman’s track record is weak. He filed suit against MERS and the banks who used it in January 2012, and two months later settled for an almost meaningless $25 million. While Schneiderman claimed that the settlement was only partial, we never heard anything about it again.
Dayen warned that the move may possibly be just a "belated PR effort" designed to "reinforce a new get-tough attitude against the big banks" but could possibly be "dumped" even before the November election.
# # #