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JPMorgan Chase & Co and Credit Suisse Group will pay a combined $416.9 million US to settle U.S. civil charges that they sold risky mortgage bonds to investors prior to the 2008 financial crisis.
The U.S. Securities and Exchange Commission said on Friday that JPMorgan will pay $296.9 million and Credit Suisse will pay $120 million, with the money going to harmed investors.
Both settlements addressed alleged negligence or other wrongdoing in the packaging and sale of risky residential mortgage-backed securities (RMBS), including at the former Bear Stearns Cos which JPMorgan bought in 2008.
The banks settled without admitting wrongdoing, and in separate statements said they were pleased to settle.
"In many ways, mortgage products such as RMBS were ground zero in the financial crisis," SEC enforcement chief Robert Khuzami said in a statement. "Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed."
Each of the settlements is significantly less than the $550 million that Goldman Sachs Group Inc agreed to pay in 2010, also without admitting wrongdoing, to settle SEC charges that it misled investors in a complex mortgage bond transaction.
They are also the latest SEC settlements not to punish individuals. In July, the SEC lost its first financial crisis-related trial against an individual when a Manhattan federal jury cleared former Citigroup Inc mid-tier executive Brian Stoker of wrongdoing in the sale of a mortgage bond transaction.
On a conference call with reporters, Khuzami said it is hard to bring cases against individuals over "structured" financial transactions because different people work on different aspects, making it hard to pin blame.
"We by no means are shying away from charging individuals where we find can identify them as being responsible," he said.
MISLEADING AND CONCEALING ALLEGED
The SEC accused JPMorgan of materially overstating in a prospectus the quality of home loans that backed a $1.8 billion RMBS offering it underwrote in December 2006.
According to the SEC, JPMorgan represented that just four loans were delinquent by 30 to 59 days, when in fact there were more than 620, or about 7 percent of the total. Investors lost at least $37 million as a result, the SEC said.
The regulator also faulted Bear's failure to disclose its having arranged discounted cash settlements with loan originators on problem loans that Bear sold into RMBS trusts, rather than forcing originators to buy those loans back. It said Bear reaped at least $137.8 million from the practice.
Credit Suisse failed to disclose similar settlements, which netted $55.7 million, the SEC said.
The Swiss bank also misled investors by falsely claiming when it would buy back mortgage loans in two offerings in which borrowers had defaulted on their initial payments, and that "all first payment default risk" had been removed, the SEC added.
About $84 million of JPMorgan's payout and $39 million of Credit Suisse's payout represented fines. The JPMorgan accord requires court approval.
JPMorgan had in June 2011 agreed to pay $153.6 million to settle a separate SEC fraud case over its sale of mortgage securities to investors, also without admitting wrongdoing.
Its latest settlement is separate from a case brought by New York Attorney General Eric Schneiderman last month over mortgage securities sold by Bear.
James Freedland, a spokesman for Schneiderman, said that while the New York case remains pending, Friday's SEC accords help bring "accountability for the misconduct that led to the collapse of the housing market."
In the Citigroup case, that bank had agreed last year to pay $285 million to settle with the SEC. U.S. District Judge Jed Rakoff in Manhattan blocked that accord in part because it required no admission of wrongdoing. The SEC and Citigroup have asked a federal appeals court to overturn that decision.
The cases are SEC v. JPMorgan Securities LLC et al, U.S. District Court, District of Columbia, No. 12-01862; and In re: Credit Suisse Securities (USA) LLC et al, U.S. Securities and Exchange Commission, No. 3-15098.