* More than 99 pct of potential $774 mln damages tossed
* Claims dismissed on 60 of 65 mortgage certificates
* Dexia says was misled into buying $1.6 bln mortgage debt
By Jonathan Stempel and Nate Raymond
April 3 JPMorgan Chase & Co has won the
dismissal of nearly all of a lawsuit accusing it of misleading
the Belgian-French bank Dexia SA into buying more than
$1.6 billion of troubled mortgage debt.
The decision made public on Wednesday by U.S. District Judge
Jed Rakoff in Manhattan is a victory for the largest U.S. bank
and its chief executive, Jamie Dimon, eliminating an estimated
99 percent of the potential damages.
Dexia's case that gained notoriety after emails and other
materials were disclosed that suggested the bank and its
affiliates knew the residential mortgage-backed securities they
were selling were toxic, but sold them anyway.
Rakoff said he would explain the reasons for his decision
"in due course."
In a statement, JPMorgan's law firm Cravath, Swaine & Moore
said the dismissal of Dexia's claims on all but five of the 65
RMBS certificates at issue reduced potential damages to about
$5.7 million from $774 million.
Dexia was not immediately available for comment. A spokesman
for its U.S. law firm declined to comment immediately. JPMorgan
spokeswoman Jennifer Zuccarelli declined to comment.
NOT OUT OF THE WOODS
The lawsuit is one of many accusing banks of trying to boost
profit and revenue by packaging low-quality mortgages into
seemingly safe securities, and simultaneously hiding the risks
or failing to ensure that the loans were underwritten properly.
JPMorgan has also been sued by New York Attorney General
Eric Schneiderman and the National Credit Union Administration
over securities created by Bear Stearns Cos, which it bought in
People familiar with the matter have said it also faces a
related U.S. Department of Justice probe.
JPMorgan is also one of 17 lenders defending against
lawsuits by the Federal Housing Finance Agency over the sale of
roughly $200 billion of troubled mortgage securities to housing
financiers Fannie Mae and Freddie Mac.
In November, JPMorgan agreed to pay $296.9 million to settle
U.S. Securities and Exchange Commission claims that Bear stuck
investors with problem home loans.
Dexia alleged it was fraudulently misled about the quality
of 65 RMBS certificates it had bought from 51 offerings from
2005 to 2007 by JPMorgan, Bear and Washington Mutual Inc, which
the bank also bought in 2008.
In a two-page order, Rakoff dismissed the case with
prejudice, meaning it cannot be brought again, apart from claims
by Dexia's FSA Asset Management unit over the five certificates.
In court hearings, Rakoff indicated skepticism about whether
Dexia had legal standing to bring some claims, and whether some
of the alleged misrepresentations supported its claims.
"You're saying that if you know that 84 percent of a given
loan pool does not comply with your own guidelines, but you
make no representation about compliance with your guidelines,
it's still an actionable omission to fail to reveal this,"
Rakoff told a Dexia lawyer at a March 4 hearing. "How could that
It is unclear how Rakoff's order affects prospects for a
trial, which the judge had said could begin in early July.
It is also unclear when Rakoff will explain why he dismissed
much of the case. On Feb. 27, he gave his written reasons for
rejecting JPMorgan's bid to dismiss the case, five months after
he had issued a "bottom line" holding.
Emails disclosed in the case suggested many instances where
JPMorgan, Bear or Washington Mutual staff knew of problems in
the quality of documentation of many loans being packaged into
securities, yet tried to press ahead with the underwriting.
In one example, a Bear official wrote in a 2006 email that
some loans "were not flagged appropriately and we securitized
many of them which are still to this day not cleared. I think
the ball was dropped big time."
Dimon in October said his bank did the Federal Reserve a
"favor" by purchasing Bear in 2008.
"Would I have done Bear Stearns again knowing what I know
today?" he told the Council on Foreign Relations in October.
"It's real close."
The case is Dexia SA/NV et al v. Bear Stearns & Co et al,
U.S. District Court, Southern District of New York, No.