FRAUD: J.P. Morgan

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — New York Attorney General Eric Schneiderman late Monday filed a lawsuit against J.P. Morgan Chase & Co. in civil court, alleging widespread fraud in the sale of mortgage-backed securities.

The suit relates to mortgage-backed securities issued by Bear Stearns & Co., which was acquired by J.P. Morgan JPM +0.59%  in 2008 amidst the global financial crisis. The complaint argues that Bear Stearns defrauded “thousands of investors.”

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J.P. Morgan accused of fraud

New York's attorney general filed a civil complaint against J.P. Morgan Chase alleging widespread fraud in the sale of mortgage-backed securities in the run-up to the financial crisis.

The charges, which came partly as a result of a federal mortgage task force formed in January by the Justice Department, assert that the misconduct was in connection with the firm’s “due diligence and quality control processes” that “constituted a systemic fraud on thousands of investors.”

The complaint alleges that Bear Stearns and its mortgage unit “committed multiple fraudulent and deceptive acts” in promoting and selling residential mortgage-backed securities. It alleges that the bank “systematically failed to fully evaluate the loans” while leading investors to believe that the securities have been “carefully evaluated.”

A spokesman for J.P. Morgan said the bank plans to contest the allegations. “We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record – instead relying on recycled claims already made by private plaintiffs,” the spokesman said.

Dennis Kelleher, president of advocacy group Better Markets, said in a statement that he hopes the lawsuit is the first of many and that lawbreakers on Wall Street will be punished.

“Finally! A major Wall Street bank has been sued for fraud for its reckless lending that helped cause the 2008 financial collapse,” Kelleher said. “Wall Street is a high crime area, but no one has been held accountable. The creation, sale and distribution of worthless toxic mortgages was at the core of the financial crisis.”

Source: Ronald D. Orol is a MarketWatch reporter, based in Washington.