JPMorgan Chase has become the second major Wall Street bank to settle with the Securities and Exchange Commission (SEC) over claims that it defrauded investors by selling mortgage-based securities designed to fail.

 

The bank will pay $153.6 million, most of which will go to investors who were advised to invest in a collateralized debt obligation (CDO) known as Squared CDO 2007-I. The SEC claimed JPMorgan structured and marketed the CDO “without informing buyers that a hedge fund [Magnetar] that helped select the assets in the portfolio stood to gain, in most cases, if the investment lost value,” according to The New York Times.

 

The settlement represents less than 1% of the JPMorgan’s annual profits.

 

Prior to the JPMorgan settlement, the SEC got Goldman Sachs to settle similar claims for $550 million.

 

Wall Street banks are not out of the legal woods yet. Private investors have filed numerous lawsuits involving $200 billion in claims against firms accused of selling toxic deals before the housing market crashed.

 

On the other hand, some observers of Wall Street’s shenanigans were dismayed that the SEC did not press charges against any individuals at JPMorgan, continuing a trend of absolving executives of legal responsibility for their firm’s misdeeds.

-Noel Brinkerhoff

 

JPMorgan Settles Case with S.E.C. (by Edward Wyatt, New York Times)

Magnetar Deal Prompts SEC Settlement With JPMorgan Chase (by Marian Wang, ProPublica)

SEC v. JPMorgan Chase (U.S. District Court, Southern New York) (pdf)

JPMorgan Chase Plays Pension Funds for Suckers (by Noel Brinkerhoff, AllGov)

JPMorgan and Deutsche Bank Accused of Fraud in Both U.S. and Italy (by Noel Brinkerhoff, AllGov)