[1]A federal judge has approved JPMorgan Chase [2]'s $500 million settlement with four pension funds over the sale of faulty mortgage-backed securities by Wall Street investment firm Bear Stearns before the financial crisis, according to media reports [3].
JPMorgan Chase, the nation's largest bank, acquired Bear Stearns [4] in March 2008 at a stock-only price of $236 million, or $2 per share. In their lawsuit, the pension funds accused Bear Stearns of selling $17.6 billion worth of toxic mortgage-backed securities to them in the run-up to the crisis.
The terms of the settlement were approved by Judge Laura Taylor Swain in the U.S. District Court for the Southern District of New York (in Manhattan). In addition to the $500 million, reports said Swain also approved the plan of allocation and $81 million in attorney fees, calling the settlement "fair, reasonable, and adequate." According to the terms of the settlement, the defendants were not required to admit any fault or wrongdoing.
Pension funds to which the settlement money will be allocated are the Public Employees' Retirement System of Mississippi (MissPERS), the New Jersey Carpenters Health Fund, the Police and Retirement System of Detroit, and the State of Oregon, according to reports.
The group of pension funds accused Bear Stearns of offering documents that contained "false" and "misleading" statements as to the quality of the securities in question. The group claimed in its original complaint that Bear Stearns made "untrue statements" and "omissions" in the documents and that the securities were "far riskier than represented." Court documents said the complaint included 22 offerings from 64,000 underlying mortgage loans from about 500 originators.
A spokesman for JPMorgan Chase declined to comment on the settlement when reached by email. A spokesperson for MissPERS referred DS News to the Mississippi Attorney General's office, which did not immediately respond to a request for comment. In 2012, the bank's CEO, Jamie Dimon, estimated that the Bear Stearns acquisition had cost the bank about $10 billion [5] in losses over the previous four years.
Legal troubles have mounted for JP Morgan Chase in the last two years regarding sales of mortgage-backed securities prior to the housing crisis. In November 2013, the bank agreed to a then-record $13 billion settlement with the U.S. Justice Department to resolve allegations misleading investors in the sales of MBS (nine months later, Bank of America broke the record by agreeing to a $16.65 billion settlement with the DOJ to resolve similar claims). Overall in 2013, JPMorgan Chase paid about $23 billion in settlements over its mortgage lending practices.
The pension funds involved in the JPMorgan Chase settlement have settled with other firms over alleged MBS fraud. In February, three financial institutions (Citigroup Global Markets, Goldman Sachs, and UBS Securities) settled with the New Jersey Carpenters Health Fund [6] for $235 million to resolve allegations of fraud on the part of the underwriters involving MBS sold to Residential Capital, an affiliate of the New Jersey Carpenters Health Fund. In September 2014, investment firm Morgan Stanley settled for $95 million [7] with MissPERS to resolve claims that the firm misled investors as to the quality of RMBS it sold before the financial crisis.