D.O.J. settles with JPMorgan Chase for $13 billion

Attorney General Eric Schneiderman. ()
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ALBANY—The U.S. Department of Justice has announced a $13 billion settlement with JPMorgan Chase, after an investigation into allegations that the bank misled investors over risky mortgage securities before the 2008 financial crisis.

The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 and co-chaired by New York State Attorney General Eric Schneiderman.

The agreement, according to a release from Schneiderman's office, is the largest settlement with a single entity in American history. The settlement, which took months to hammer out, leaves open the possibility of criminal prosecutions for bank executives and employees.

As part of the settlement, JP Morgan will pay $9 billion while providing an additional $4 billion in consumer relief, including donation of foreclosed properties to land banks and new mortgage loans to low income families hurt by the financial crisis. New York will receive $1 billion, including $613 million in cash, which include mortgage modifications for those facing foreclosure.

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As part of the settlement, JPMorgan had to admit its employees repeatedly misled investors and the public. Employees routinely bundled toxic loans into securities and misled investors, which greatly contributed to the financial crisis, Schneiderman said. As homeowners defaulted on their mortgages, the value of the risky securities plummeted and unsuspecting investors lost money.

“We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable,” he said in a statement.

President Barack Obama announced the RMBS working group in his 2012 state of the union address. The group, which is co-chaired by Schneiderman is comprised of the Department of Justice and several state law enforcement officials.