JPMorgan Chase & Co, the biggest U.S. bank by assets, said on Wednesday that it faces a criminal probe by the U.S. Department of Justice over sales of mortgage-backed securities and that civil investigators have already concluded it violated securities laws.
In a quarterly filing with the Securities and Exchange Commission, JPMorgan said it is responding to "parallel investigations" being conducted by the civil and criminal divisions of the United States Attorney's Office for the Eastern District of California over mortgage-backed securities.
In May, JPMorgan received a notice that the department's civil division had preliminarily concluded that the firm violated federal securities laws in offerings of subprime and Alt-A residential mortgage securities during 2005 to 2007, the filing said.
The company also said that it has received requests concerning mortgage securities from the U.S. attorney for Connecticut, the SEC's enforcement division and the inspector general for the government's primary bank bailout program.
A JPMorgan spokesman declined additional comment.
The disclosures came one day after government lawyers filed an $850 million civil lawsuit against Bank of America Corp over the sale of bonds backed by jumbo mortgages. The lawsuit followed a disclosure by Bank of America on August 1 that it expected to be sued by the Department of Justice and SEC over mortgage bonds.
News of the investigations comes after President Barack Obama vowed to hold companies responsible for breaking the law in financing the housing bubble that caused the 2007-2008 financial crisis and the Great Recession.
U.S. Attorney General Eric Holder said in a statement on Tuesday that Obama's Financial Fraud Enforcement Task Force, which brought the latest lawsuit against Bank of America, "will continue to take an aggressive approach to combating financial fraud and uncovering abuses in the residential mortgage-backed securities market," and is pursuing "a range of additional investigations."
One of the major criticisms by homeowners, investors and politicians is that federal and state investigators have failed to bring criminal charges against high-level executives over lending and securitization activities that contributed to the housing and financial crises. No top executives at large Wall Street or commercial banks have been convicted of criminal charges related to the crises.
"Criminal probes of banks over MBS have been exceedingly rare," said Adam Levitin, a professor at Georgetown Law.
The Justice Department's Eastern District of California, where the probes are based, includes smaller cities in the state's Central Valley that were hard hit by collapsing house prices and mortgage foreclosures. The top prosecutor for the district is Ben Wagner, who is one of the leaders of the department's financial fraud task force and the co-chair of its mortgage group, according to a government website.
A spokesman for Wagner declined to comment.
In the filing, JPMorgan also said the U.S. Office of the Comptroller of the Currency has said it intends to seek an administrative order over how it had handled collections of consumer credit card debt.
The probes also come as JPMorgan is trying to restore its reputation for controlling risks after losing more than $6.2 billion in 2012 on its so-called "London Whale" derivatives trades.
In the filing, the company also raised its estimate of possible legal losses in excess of reserves to $6.8 billion at the end of June from $6 billion three months earlier.
(Additional reporting by Peter Rudegeair, Nate Raymond and Jonathan Stempel in New York and Dan Levine in San Francisco; Editing by Leslie Gevirtz and Chris Gallagher)