JPMorgan agrees to settle SEC case
Source: Agencies |
June 23, 2011, Thursday
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JPMORGAN Chase & Co agreed to pay US$153.6 million to settle US Securities and Exchange Commission charges that it defrauded investors who bought mortgage securities sold just before the nation's housing market collapsed.
The regulator's complaint against the banking giant was larded with excerpts from internal JPMorgan communications that indicated bankers sold a collateralized mortgage obligation in 2007 to ensure that it could get credit-scarred mortgage securities off its books.
"We are soooo pregnant with this deal, we need a wheel-barrel to move around," the head of CDO distribution wrote in a March 22, 2007 e-mail to the sales staff. "Let's schedule the cesarian, please!"
The settlement with JPMorgan, the second largest US bank, echoes on a smaller scale the US$550 million accord that Goldman Sachs Group Inc reached last July over its Abacus collateralized debt obligation.
Both cases involved charges that banks let hedge fund clients structure complex securities - and then bet against them - without disclosing their involvement to investors.
The SEC on Tuesday also filed civil charges against Edward Steffelin, 41, a former managing director at the now bankrupt GSC Capital Corp, which served as collateral agent for the JPMorgan CDO marketed as Squared CDO 2007-1.
It alleged that he hoped to get a job with the Magnetar Capital LLC hedge fund, while helping to create marketing materials that failed to disclose Magnetar chose some securities in the CDO and had a nearly US$600 million bet that they would lose value.
JPMorgan sold US$150 million of Squared CDO notes to pension funds and investors worldwide that lost most of their value in just 10 months, the SEC said.
"This is deja vu all over again," said John Coffee, a securities law professor at Columbia University, recalling the Goldman case with a quote from baseball legend Yogi Berra. "If Goldman and JPMorgan were doing this, it wouldn't surprise me if others were as well."
No individual bankers were charged in the JPMorgan case, but SEC enforcement chief Robert Khuzami said the agency continues to pursue individuals and has charged roughly 50 people in cases related to the credit crisis of 2008.
SEC Chairman Mary Schapiro also addressed criticism about the lack of charges against individuals.
"It is not for lack of will and desire that we are not seeing as many senior people being named in these cases," Schapiro said. "If we could, we would be naming them."
Fabrice Tourre, a Goldman vice president whose case is ongoing, was the only individual charged by the SEC over Abacus.
Schapiro said the SEC will continue to bring charges against banks.
"We have a pretty full pipeline of post-crisis cases," she said.
The regulator's complaint against the banking giant was larded with excerpts from internal JPMorgan communications that indicated bankers sold a collateralized mortgage obligation in 2007 to ensure that it could get credit-scarred mortgage securities off its books.
"We are soooo pregnant with this deal, we need a wheel-barrel to move around," the head of CDO distribution wrote in a March 22, 2007 e-mail to the sales staff. "Let's schedule the cesarian, please!"
The settlement with JPMorgan, the second largest US bank, echoes on a smaller scale the US$550 million accord that Goldman Sachs Group Inc reached last July over its Abacus collateralized debt obligation.
Both cases involved charges that banks let hedge fund clients structure complex securities - and then bet against them - without disclosing their involvement to investors.
The SEC on Tuesday also filed civil charges against Edward Steffelin, 41, a former managing director at the now bankrupt GSC Capital Corp, which served as collateral agent for the JPMorgan CDO marketed as Squared CDO 2007-1.
It alleged that he hoped to get a job with the Magnetar Capital LLC hedge fund, while helping to create marketing materials that failed to disclose Magnetar chose some securities in the CDO and had a nearly US$600 million bet that they would lose value.
JPMorgan sold US$150 million of Squared CDO notes to pension funds and investors worldwide that lost most of their value in just 10 months, the SEC said.
"This is deja vu all over again," said John Coffee, a securities law professor at Columbia University, recalling the Goldman case with a quote from baseball legend Yogi Berra. "If Goldman and JPMorgan were doing this, it wouldn't surprise me if others were as well."
No individual bankers were charged in the JPMorgan case, but SEC enforcement chief Robert Khuzami said the agency continues to pursue individuals and has charged roughly 50 people in cases related to the credit crisis of 2008.
SEC Chairman Mary Schapiro also addressed criticism about the lack of charges against individuals.
"It is not for lack of will and desire that we are not seeing as many senior people being named in these cases," Schapiro said. "If we could, we would be naming them."
Fabrice Tourre, a Goldman vice president whose case is ongoing, was the only individual charged by the SEC over Abacus.
Schapiro said the SEC will continue to bring charges against banks.
"We have a pretty full pipeline of post-crisis cases," she said.
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