Photo: Stanford Graduate School of Business
Federal Regulators just sued JPMorgan and RBS for lying to credit unions in offering documents for mortgage-backed securities.The offering documents that RBS and JPMorgan gave to investors, specifically credit unions, contained “untrue statements of material fact,” or “omitted to state material facts” in violation of state and federal securities laws, says a new lawsuit filed against the firms by the National Credit Union Administration.
The NCUA seeks $565 million from RBS and $278 from JPMorgan. The lawsuits are available for download here. We’re going through them right now and let you know what they’re all about soon.
At first glance, the lawsuit seems to take issue with one of the underlying aspects of the mortgage crisis, that ratings agencies used “credit enhancement” to give shoddy mortgages high ratings. The NCUA was not aware of the credit enhancement.
Here’s one key sentence from the lawsuit against JPMorgan:
If the Credit Unions had known about the Originators’ pervasive disregard of underwriting standards— contrary to the representations in the Offering Documents—the Credit Unions would not have purchased the certificates.
They plan to file similar lawsuits against 5-10 banks in the coming weeks, a spokesman told the WSJ. The lawsuit against JPMorgan cites the recently released paper written by the Permanent Subcommittee on Investigations in the US on the causes of the Financial Crisis, which is interesting because others might stem from the report.
But as we’re reading this, it seems like the NCUA is suing the firms for exposing them to the financial crisis. It might be hard to prove wrong doing in that case, but we’ll keep reading and let you know if we find anything else.
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