(December 9, 2011) — JPMorgan Chase & Co has been sued by Stichting Pensioenfonds ABP.
The pension fund for public employees in the Netherlands sued JPMorgan over residential mortgage-backed securities the scheme purchased, Reuters reported. According to the lawsuit, filed in New York State Supreme Court in Manhattan, the Dutch fund purchased the pools of home loans based on false and misleading statements. The lawsuit noted that the mortgage loans backing the securities were taken out by borrowers “who were much less creditworthy than had been represented.”
Financial institutions have faced a flurry of lawsuits over mortgage-backed securities. For example, the SEC announced in June that JP Morgan would pay $153 million to settle charges of allegedly selling $1.1 billion in mortgage-backed securities that were designed to fail. The US regulator asserted that as the housing market crumbled in March and April 2007, JP Morgan executives urged the marketing of Squared CDO 2007-1, a synthetic CDO linked to a collection of residential mortgages, without informing investors that a hedge fund — Magnetar Capital — helped select the assets in the CDO portfolio and had a short position in more than half of those assets. Consequently, the hedge fund was positioned to benefit if the CDO assets it was selecting for the portfolio defaulted.
“J.P Morgan marketed highly-complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests,” Robert Khuzami, the SEC’s director of the division of enforcement, said in a statement. “What JP Morgan failed to tell investors was that a prominent hedge fund that would financially profit from the failure of CDO portfolio assets heavily influenced the CDO portfolio selection. With today’s settlement, harmed investors receive a full return of the losses they suffered.”
In October, Morgan Stanley won the dismissal of a Virgin Islands pension fund’s lawsuit over a collateralized debt obligation (CDO). In 2009, the Employees’ Retirement System of the Government of the Virgin Islands claimed that the bank defrauded investors by collaborating with ratings companies to give the CDO an undeserved AAA rating while it was simultaneously short-selling nearly all of the assets underlying the notes. Bloomberg reported. The complaint alleged that the bank was therefore motivated to defraud investors with positive ratings, aware the CDO assets were suffering from an increase in delinquencies and were riskier than the ratings indicated.
Earlier, in July 2010, Goldman agreed to pay $550 million to settle charges by the SEC over the Abacus 2007-AC1 CDO.