“As of June 30, 2013, the Firm and its subsidiaries are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members.”
It’s no secret that major financial institutions like JPMorgan (NYSE:JPM) are constantly swamped in litigation. The note above was pulled from the firm’s most recent 10-Q quarterly filing with the Securities and Exchange Commission, in which JPMorgan estimated the range of possible losses associated with its ongoing and pending legal proceedings to be between $0 and $6.8 billion more than what it had already set aside. The high end of this range is up from $6 billion in the previous quarter. The firm set aside $600 million in additional litigation reserves (9 cents per share after tax) in the second quarter.
Over the past few weeks alone, JPMorgan agreed to pay $410 million in penalties to the Federal Energy Regulatory Commission for allegations of energy market manipulation in California and the Midwest, was accused of fraudulently masking the risk of financial instruments in Italy, and had two board members resign in relation to the firm’s $6.2 billion London Whale Trade fiasco.
Just this week, JPMorgan along with Goldman Sachs (NYSE:GS) and Glencore Xstrata became the subjects of a lawsuit filed by aluminum purchasers for their alleged involvement in the manipulation of the price of the commodity.
To round out what has been a legally dense year for JPMorgan, the firm’s 10-Q filing revealed that it is not done being haunted by the ghosts of the financial crisis.
“The Firm is responding to parallel investigations being conducted by the Civil and Criminal Divisions of the United States Attorney’s Office for the Eastern District of California relating to MBS offerings securitized and sold by the Firm and its subsidiaries. In May 2013, the Firm received a notice from Civil Division stating that it has preliminarily concluded that the Firm violated certain federal securities laws in connection with its subprime and Alt-A residential MBS offerings during 2005 to 2007.”
This is by no means the first — and may not be the last — investigation regarding JPMorgan’s role in the financial crisis. Alongside the California investigation, the firm is facing lawsuits from the attorneys general of Massachusetts and New York for “various alleged wrongdoings relating to mortgage assignments and use of the industry’s electronic mortgage registry.”
And JPMorgan is by no means the only financial institution with a few skeletons in the closet. The U.S. Department of Justice on Tuesday announced it was suing Bank of America (NYSE:BAC) for allegedly defrauding investors by underestimating — or understating — the quality of mortgage backed securities.
U.S. Attorney General Eric Holder called the lawsuit the “latest step forward in the Justice Department’s ongoing efforts to hold accountable those who engage in fraudulent or irresponsible conduct.”
According to the filing, when Bank of America put together securities in 2008, the bank ignored the fact that more than 40 percent of the mortgages did not meet the underwriting guidelines. Despite Bank of America’s knowledge of the troubled mortgages, the government alleges that the bank sold the securities anyway.
The lawsuit differs from others related to the 2008 financial crisis in that this one deals with prime mortgages rather than subprime loans. It also doesn’t focus on Countrywide Financial, which had become the main target related to the housing crisis, but on Bank of America’s own mortgage operations.
The lawsuit says that because of Bank of America’s increased pressure to generate profits, employees were pushed to move more quickly through mortgage evaluations — reckless behavior that was nonetheless characteristic of many banks before the financial crisis hit.