Another day in mortgage banking, another lawsuit. This time, the National Credit Union Administration (NCUA) has filed suit in Federal District Court in Kansas against J.P. Morgan Securities and Bear Stearns & Co., alleging violations of federal and state securities laws in the sale of $3.6 billion in mortgage-backed securities to four corporate credit unions that later failed.
NCUA's suit – the largest the agency has filed to date – alleges Bear Stearns made misrepresentations in connection with the underwriting and subsequent sale of mortgage-backed securities to four corporate credit unions that later became insolvent, requiring their placement into NCUA conservatorship and subsequent liquidation. NCUA currently has eight similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities and Wachovia.
The new NCUA complaint alleges Bear Stearns made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. J.P. Morgan Securities purchased Bear Stearns in 2008.
‘Bear Stearns was one of several Wall Street firms that sold faulty securities to corporate credit unions, leading to their collapse and enormous losses across the industry,’ says NCUA Board Chairman Debbie Matz. ‘Firms like Bear Stearns acted unfairly by ignoring the rules for underwriting. They packaged these securities and then told buyers the paper was sound. When the securities plunged in value, we learned the truth. NCUA is now working to hold these underwriters accountable and secure recoveries on behalf of federally insured credit unions.’
To date, the agency has settled similar claims worth more than $170 million with Citigroup, Deutsche Bank Securities and HSBC.