Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, October 2, 2012

New York AG Sues Over Bear's Role in Marketing Residential Mortgage-Backed Securities

Yesterday the New York State Attorney General brought a civil suit against Bear, Stearns & Co. (now J.P. Morgan Securities LLC) under the state's Martin Act arising out of Bear's role in connection with the creation and sale of residential mortgage-backed securities ("RMBS" to investors prior to the firm's 2008 collapse.  AG Eric Schneiderman is co-chair of the Residential Mortgage-Backed Securities Group formed by the DOJ in January 2012.  According to the complaint:

At the heart of Defendants' fraud was their failure to abide by their representations that they took a variety of steps to ensure the quality of the loans underlying their RMBS, including checking to confirm that those loans were originated in accordance with the applicable underwriting guidelines, i.e., the standards in place to ensure, among other things, that loans were extended to borrowers who demonstrated the willingness and ability to repay.

As a result, the complaint alleges, defendants' misconduct constituted "a systemic fraud on thousands of investors."  The complaint does not set forth with specificity the requested relief beyond an injunction, an accounting, disgorgement, restitution and damages.

The AG's allegations are similar to those made in a number of private lawsuits currently before the courts.

AG's complaint (Download 108632018-nyagvjpmc[1])

GMorgenson, NYTimes, JPMorgan Unit Is Sued Over Mortgage Securities Pools

AG's Press Release, A.G. Schneiderman Sues JPMorgan For Fraudulent Residential Mortgage-backed Securities Issued By Bear Stearns

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