JPMorgan Sued for 3rd Time by U.S. Regulator.

[ by Howard Haykin ]

JPMorgan Chase & Co., in the role of the 'white knight', swooped down and rescued Washington Mutual in 2008, at the urging of the U.S. government.  Sir Jamie Dimon agreed to acquire the failing savings bank holding company and relieve the government of the burden of having to support WaMu - just as he and JPMorgan had done with Bear Stearns, when that broker suffered a TKO because it couldn't answer the bell for the next session following a tumultuous final weekend of 'truth or dare'. 

Yet, for JPMorgan, these stories had no fairy tale endings, and it's quite understandable why Jamie Dimon is red in the face and perplexed as to when all the regulatory probes and civil lawsuits will end - particularly those pertaining to actions taken by Bear Stearns and WaMu prior to their associations with JPMorgan.    

Sued Three Times by U.S. Regulator.   JPMorgan Chase has now been sued 3 times by the National Credit Union Administration (NCUA), on behalf of credit unions that this U.S. regulator oversees.  Two of these suits were filed within the past month.

• In December 2012, NCUA charged JPMorgan with misrepresentation in the underwriting and sale of MBS's worth over $3.6 billion.  These securities were sold to the U.S. Central, Western Corporate, Southwest Corporate and Members United Corporate federal credit unions by Bear Stearns & Co.

• In January 2013, NCUA charged JPMorgan with misrepresentation in the underwriting and sale of MBS worth over $2.2 billion.  These MBSs were sold to the U.S. Central, Western Corporate and Southwest Corporate federal credit unions (FCUs) by Washington Mutual.  Later, these 3 FCUs became insolvent and were placed under NCUA conservatorship and then liquidated due to the losses from these risky MBSs.

• And, just to complete the loop, in June 2011, JPMorgan, along with RBS, was accused of defrauding 5 large credit unions by selling more than $3 billion worth of high-risk MBSs

• All together, NCUA seeks to recover about $840 million in losses at five wholesale credit unions through these lawsuits.

 
Washington Mutual has been accused by NCUA of ...  issuing misleading statements and omitting important details from the offering documents of the MBS in question. This led to obscurity regarding the risks associated with the MBS when these were sold.  The credit unions perceived these to be less risky; when in fact, the securities were substantially risky in nature. Moreover, it has been alleged that Washington Mutual ignored the underwriting guidelines specified in the offering documents.

As a result, when these MBS lost their value for defaults in the underlying assets, the value of investments of the credit unions in these MBS plummeted.  Subsequently, the 3 credit unions collapsed, triggering a crisis in the credit union industry.

Other global giants to feel the wrath of NCUA include ...   Credit Suisse Group, Goldman Sachs Group, Wells Fargo and Barclays PLC.   Each face similar lawsuits from NCUA. 

You can add Deutsche Bank, HSBC Holdings and Citigroup to the group - these banks reached settlements with NCUA for approximately $171 million.

For further details, go to:   [Motley Fool, via Zacks,  1/7/13].