WASHINGTON/NEW YORK ― JPMorgan Chase & Co agreed to pay $153.6 million to settle U.S. Securities and Exchange Commission charges that it defrauded investors who bought mortgage securities sold just before the nation’s housing market collapsed.
The regulator’s complaint against the banking giant was larded with excerpts from internal JPMorgan communications that indicated bankers sold a collateralized mortgage obligation in 2007 to ensure that it could get credit-scarred mortgage securities off its books.
“We are soooo pregnant with this deal, we need a wheel-barrel to move around,” the head of CDO distribution wrote in a March 22, 2007 email to the sales staff. “Let’s schedule the cesarian, please!”
The settlement with JPMorgan, the second-largest U.S. bank, echoes on a smaller scale the $550 million accord that Goldman Sachs Group Inc reached last July over its Abacus collateralized debt obligation.
Both cases involved charges that banks let hedge fund clients structure complex securities ― and then bet against them ― without disclosing their involvement to investors.
The SEC on Tuesday also filed civil charges against Edward Steffelin, 41, a former managing director at the now bankrupt GSC Capital Corp, which served as collateral agent for the JPMorgan CDO marketed as Squared CDO 2007-1.
It alleged that he hoped to get a job with the Magnetar Capital LLC hedge fund, while helping to create marketing materials that failed to disclose that Magnetar chose some securities in the CDO and had a nearly $600 million bet that they would lose value.
JPMorgan sold $150 million of Squared CDO notes to pension funds and investors worldwide that lost most of their value in just 10 months, the SEC said.