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calendar   Wednesday - June 22, 2011

Kill The Economy, Win A Prize!

JPMorgan to pay $153.6M to settle fraud charges

JPMorgan Chase & Co. has agreed to pay $153.6 million to settle civil fraud charges that it misled buyers of complex mortgage investments just as the housing market was collapsing.

J.P. Morgan Securities, a division of the powerful Wall Street bank, failed to tell investors that a hedge fund helped select the investment portfolio and then bet that the portfolio would fail, the Securities and Exchange Commission said.

The settlement announced Tuesday is one of the most significant legal actions targeting Wall Street’s role in the 2008 financial crisis. It comes a year after Goldman Sachs & Co. paid $550 million to settle similar charges.

Still, the settlement amounts to less than 1 percent of the bank’s 2010 net income of $17.4 billion—or less than what JPMorgan earns in one week.

JPMorgan neither admitted nor denied wrongdoing under the settlement. The bank released a statement saying it lost nearly $900 million on the investment. It also noted that it reviewed similar mortgage investments and voluntarily paid $56 million to compensate some investors in those deals.

The bank agreed to settle the charges two weeks after Jamie Dimon, CEO of JPMorgan Chase & Co., complained to Federal Reserve Chairman Ben Bernanke that new financial regulations designed to prevent another financial crisis were too burdensome on banks.

Magnetar wasn’t charged in the SEC action. SEC enforcement chief Robert Khuzami said the hedge fund “was not responsible for those disclosures to investors.” But he said such deals “remain a high priority for the SEC.”

Magnetar essentially made a $600 million bet that the investments would fail once the deal closed in May 2007, the SEC said. Just one month earlier, JPMorgan had launched a “frantic global sales effort” going beyond its traditional customers to sell mortgage securities, according to the agency’s suit.

Khuzami said the JPMorgan case, at its core, is about getting investors truthful information about their investment options.

“The appropriate disclosures would have been to inform investors that an entity with economic interests adverse to their own was involved in selecting the portfolio,” he said.

The penalty is the biggest since Goldman Sachs & Co. settled civil fraud charges last summer. The $550 million that Goldman paid was the largest penalty against a Wall Street firm in SEC history. The Goldman settlement amounted to less than 5 percent of Goldman’s 2009 net income of $12.2 billion after payment of dividends to preferred shareholders—or a little more than two weeks of net income.

Goldman was accused of steering investors toward mortgage investments without telling the buyers that the securities had been crafted with input from a client that was betting on them to fail.

Not even a slap on the wrist. In most other parts of the world, these guys would have been shot.


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Posted by Drew458   United States  on 06/22/2011 at 03:57 PM   
Filed Under: • EconomicsFinance and Investing •  
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