* JPMorgan to pay $296.9 mln, Credit Suisse $120 mln
* SEC says banks were misleading on mortgage investments
* JPMorgan, Credit Suisse say pleased to settle
By Aruna Viswanatha and Jonathan Stempel
WASHINGTON/NEW YORK, Nov 16 JPMorgan Chase & Co
and Credit Suisse Group AG will pay a
combined $416.9 million to settle U.S. civil charges that they
misled investors in the sale of risky mortgage bonds prior to
the 2008 financial crisis, regulators said on Friday.
JPMorgan will pay $296.9 million, while Credit Suisse will
pay $120 million in a separate case, with the money going to
harmed investors, the U.S. Securities and Exchange Commission
Both settlements addressed alleged negligence or other
wrongdoing in the packaging and sale of risky residential
mortgage-backed securities (RMBS), including at the former Bear
Stearns Cos which JPMorgan bought in 2008.
The banks settled without admitting wrongdoing, and in
separate statements said they were pleased to settle.
"In many ways, mortgage products such as RMBS were ground
zero in the financial crisis," SEC enforcement chief Robert
Khuzami said in a statement. "Misrepresentations in connection
with the creation and sale of mortgage securities contributed
greatly to the tremendous losses suffered by investors once the
U.S. housing market collapsed."
NO INDIVIDUALS CHARGED
Each settlement is significantly less than the $550 million
that Goldman Sachs Group Inc agreed to pay in 2010, also
without admitting wrongdoing, to settle SEC charges that it
misled investors in a complex mortgage bond transaction.
They are also the latest SEC settlements not to punish
individuals. In July, the SEC lost its first financial
crisis-related trial against an individual when a Manhattan
federal jury cleared former Citigroup Inc mid-tier
executive Brian Stoker of wrongdoing in the sale of a mortgage
On a conference call with reporters, Khuzami said it is hard
to bring cases against individuals over "structured" financial
transactions because different people work on different aspects,
making it hard to pin blame.
"We by no means are shying away from charging individuals
where we find we can identify them as being responsible," he
The enforcement actions are the second and third from a
"working group" of federal and state agencies created this year
by President Barack Obama to investigate misconduct related to
RMBS that contributed to the financial crisis.
Last month, New York Attorney General Eric Schneiderman, who
like Khuzami is a co-chair of the group, filed a still-pending
civil fraud lawsuit against JPMorgan over Bear's packaging and
sale of mortgage securities.
Khuzami told reporters on the conference call that the
working group is probing other RMBS transactions.
JPMorgan shares closed up 14 cents, or 0.4 percent, at
$39.53 on the New York Stock Exchange. Credit Suisse shares
closed in Europe down 2.3 percent at 20.66 Swiss francs.
MISLEADING AND CONCEALING ALLEGED
The SEC accused JPMorgan of materially overstating in a
prospectus the quality of home loans that backed a $1.8 billion
RMBS offering it underwrote in December 2006.
According to the SEC, the largest U.S. bank represented that
just four loans were delinquent by 30 to 59 days, when in fact
there were more than 620, or about 7 percent of the total.
Investors lost at least $37 million as a result, the SEC said.
The regulator also faulted Bear's failure to disclose its
having arranged discounted cash settlements with originators
that left investors stuck owning many problem loans, rather than
forcing the originators to buy the loans back. It said Bear
reaped at least $137.8 million from the practice.
Credit Suisse failed to disclose similar settlements, which
netted $55.7 million, the SEC said.
The Swiss bank also misled investors by falsely claiming
when it would buy back mortgage loans in two offerings in which
borrowers had defaulted on their initial payments, and that "all
first payment default risk" had been removed, the SEC added.
About $84 million of JPMorgan's payout and $39 million of
Credit Suisse's represented fines. The JPMorgan accord requires
approval by a federal judge in Washington, D.C., while Credit
Suisse's case was resolved in an SEC administrative proceeding.
JPMorgan had in June 2011 agreed to pay $153.6 million to
settle a separate SEC fraud case over its sale of mortgage
securities to investors, also without admitting wrongdoing.
James Freedland, a spokesman for Schneiderman, said Friday's
SEC accords help provide "accountability" for misconduct linked
to the housing market's collapse.
In the Citigroup case, that bank had agreed last year to pay
$285 million to settle with the SEC.
U.S. District Judge Jed Rakoff in Manhattan rejected that
accord, saying he could not tell if it was fair because the bank
did not have to admit or deny liability. The SEC and Citigroup
have asked a federal appeals court to overturn his decision.
The cases are SEC v. JPMorgan Securities LLC et al, U.S.
District Court, District of Columbia, No. 12-01862; and In re:
Credit Suisse Securities (USA) LLC et al, U.S. Securities and
Exchange Commission, No. 3-15098.