In a one-two punch to its reputation, JPMorgan Chase & Co. was accused by regulators in separate cases of misleading big investors about the riskiness of mortgage-related securities it was selling just as the home-loan market was melting down.
The Securities and Exchange Commission sued the giant bank’s securities unit over its sale in 2007 of a complex investment product whose value was indirectly tied to a collection of residential mortgages. JPMorgan did not tell the product’s institutional buyers that it had been partly designed by a hedge fund that would profit if the security lost value, the SEC said in a complaint filed Tuesday in Manhattan federal court.
As it filed the complaint, the agency announced that JPMorgan, the second-largest U.S. bank by most measures, had agreed to pay $153.6 million to settle the case.
A day earlier, the National Credit Union Administration, a federal regulator of credit unions, sued JPMorgan and Royal Bank of Scotland, accusing them of selling mortgage-backed bonds that were “destined to perform poorly,” leading to losses that brought down five large credit unions. The suit, filed in federal court in Kansas, seeks $800 million from the banks. JPMorgan and RBS declined to comment on that case.
This week’s allegations are notable because unlike some Wall Street rivals, JPMorgan until now hadn’t been explicitly accused of misconduct that helped lead to the global financial crisis.
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