JP Morgan Chase revealed in a regulatory filing Wednesday that the bank faces civil and criminal investigations over its dealing of shoddy mortgage securities that led to the 2008 financial crisis. It was the first time the bank has acknowledged the probe. The filing revealed that U.S. district attorneys have preliminarily concluded JPMorgan flouted federal laws by selling subprime mortgages from 2005-2007. The criminal investigation is in an earlier phase, and it's not the only legal threat the bank faces. Federal prosecutors in Philadelphia are examining whether JPMorgan duped investors into buying worthless securities. All in all, the bank faces scrutiny from eight federal agencies, a state regulator, and two European nations.
JPMorgan is also one of 18 banks that a federal regulator accused of selling troubled loans to Fannie Mae and Freddie Mac — the government-controlled mortgage finance giants — without fully disclosing the potential risks. The regulator, the Federal Housing Finance Agency, recently rejected a settlement offer from JPMorgan, the people briefed on the matter said, raising the prospect of a drawn-out legal battle.
In the latest investigations out of California and Philadelphia, federal prosecutors are examining whether JPMorgan ignored evidence of broad flaws among the loans that were ultimately pooled and sold to investors, the people briefed on the matter said. The California investigation is aimed at the mortgage business that JPMorgan inherited after its purchase of Washington Mutual, the people said. It is unclear what prompted the inquiry in Philadelphia.
Facing the onslaught of unwanted attention, JPMorgan has moved to settle some cases. The bank recently struck a $410 million settlement with the nation's top energy regulator, which had accused the bank of devising "manipulative schemes" to transform "money-losing power plants into powerful profit centers."
On Tuesday, Bank of America found itself in the government's cross hairs when the Justice Department and the Securities and Exchange Commission accused the bank of defrauding investors by greatly overstating the quality of mortgages backing roughly $850 million in securities. The bank has contested the accusations.