On Friday, banking giant JP Morgan Chase agreed to a $388 million settlement to resolve a class-action lawsuit claiming that the company misled investors regarding the stability of $10 billion worth of mortgage-backed securities (MBS). The lead plaintiff in the case was the Fort Worth employees’ retirement fund, along with others including the Northern and Southern California Laborers Pension Funds. The plaintiffs claim the JP Morgan misled them about the value and the credit quality of the mortgages involved in nine separate investment offerings. The 2008 Lehman Brothers collapse dropped the securities to 62 percent of its former value. As per terms of the settlement, the bank denies any wrongdoing, instead blaming the tumultuous economic collapse for the losses. A Manhattan federal judge must still approve the settlement.
On a percentage basis, the settlement is the largest recovery ever among the 16 settled MBS-related consumer class-action suits. The agreement comes after six years of litigation, over 80 million pages of documentation produced, and over 40 witness depositions. Among others, law firms Sullivan & Cromwell, and Robbins Geller were the main attorneys in the massive case. Robbins Geller Partner Luke Brooks was quick to credit the efforts of the California pensioners, saying “We couldn’t have achieved such a stellar recovery without the leadership of the Northern and Southern California Laborers Pension Funds. These Funds not only stepped forward to protect their participants’ hard earned retirement savings, but equally important they committed themselves to the trial of this action, which allowed us to maximize the recovery for the class.” Robbins Geller also secured the industry’s most consequential whistleblower witness, former employee Alayne Fleischmann.
The settlement is the second major resolution for the company this month, having agreed to a separate $136 million settlement on July 8th, regarding collections and debt-selloff practices from 2009 through June 2014. In that case, 47 states, the District of Columbia, and the Consumer Financial Protection Bureau (CFPB) sued for the company to pay restitution and cease collection efforts on behalf of over 500,000 consumers that the company filed lawsuits against. JP Morgan has settled several cases, most notably the whopping $13 million dollar penalty it negotiated with the U.S. Department of Justice involving similar allegations. Despite the astounding sum of the settlement, it did not protect the company against future litigation. According to dividend.com, the company has paid over $35 billion in total penalties from mid 2011 through the end of 2014.
Bloomberg Business – Patricia Hurtado
International Business Times (UK) – Jerin Mathew
USA Today – Kevin McCoy