Lawyers for the plaintiffs in a class-action lawsuit involving J.P. Morgan Chase & Co. stated, “the parties have reached an agreement in principle,” the Wall Street Journal reports. J.P. Morgan has agreed to pay approximately $500 million to settle the lawsuit over nearly $18 billion worth of poor-quality mortgage-backed securities sold by Bear Stearns Cos.
Investors alleged that Bear Stearns “misrepresented the quality of the loans in the loan pools” and garnered credit ratings for the loans from ratings agencies that were “unjustifiably high,” according to a complaint filed with the court. The complaint also included the pension funds’ claim that the documents associated with the certificates had false statements regarding the underwriting standards used to originate the loans.
The plaintiffs, led by the New Jersey Carpenters Health Fund and the Public Employees’ Retirement System of Mississippi, said they purchased certificates that were “far riskier than represented, not of the ‘best quality’ and not equivalent to other investments with the same credit ratings.” The plaintiffs further stated that most of the certificates were downgraded to below investment-grade level and their value sank.
The complaint advanced strict liability and negligence claims, not claiming fraud on behalf of Bear Stearns. The letter of agreement to resolve the lawsuit was filed in U.S. District Court in Manhattan on Thursday, January 8, according to the Wall Street Journal. It is one of several lawsuits involving J.P Morgan, which has paid more than $20 billion to government and private investors to settle mortgage-related claims over the past two years. Many of the claims originate from acquisitions it made during the financial crisis, including the 2008 purchase of Bear Stearns and the banking assets of Washington Mutual.
The news report says J.P. Morgan’s chairman and chief executive, James Dimon, confessed in October 2013 that he had not fully anticipated how much the bank would have to pay to defend itself against matters passed down from Bear Stearns and also believed the bank would be insulated from problems involving Washington Mutual. He went on to say, “But that doesn’t mean people can’t come after you, so that’s a lesson learned.”