[by Larry Goldfarb]

The SEC continues to crackdown on misleading sales practices.  Earlier in the year, Goldman Sachs paid in excess of $500 Million to settle with the SEC.  Today, J.P. Morgan Chase & Co. and Credit Suisse Group AG have agreed to pay more than $400 million to settle allegations that they misled investors through packaging and selling of mortgage securities in the lead-up to the financial crisis.

J.P. Morgan will pay $296.9 million in disgorgement and penalties, and Credit Suisse will pay $120 million to settle the charges. Neither banking company has admitted nor denied the allegations. The agency plans to distribute the money to investors that were harmed.

J.P. Morgan was accused of understating the delinquency rate of mortgages behind an offering of $1.8 billion residential mortgage-backed securities made in December 2006, the SEC said. Investors were told that only four loans were more than 30 days delinquent, when actually the number was higher than 620. The bank received fees of more than $2.7 million in the deal, while investors lost at least $37 million on undisclosed delinquent loans.

The regulatory agency also said that Bear Stearns, which J.P. Morgan acquired at the dawn of the financial crisis in 2008, received compensation from lenders for bad loans that it purchased to bundle into mortgage securities, but then failed to pass that money on to the investors in the securities.

Credit Suisse similarly failed to disclose its practice of keeping cash from the settlement of claims against lenders for problem loans that the Swiss bank had sold off, the SEC said. The bank was also accused of misstating when it would repurchase mortgages if borrowers missed a payment.

SEC officials said that these cases won't be the last.  "These actions demonstrate that we intend to hold accountable those who misled investors through poor disclosures in the sale of RMBS and other financial products commonly marketed and sold during the financial crisis," said Kenneth Lench, who heads the SEC enforcement division's structured and new products unit. "Our efforts in that regard continue."

For more information, please read [SEC, 11/16/12]