JP Morgan Faces Criminal Investigation Over Mortgages

JP Morgan is being investigated by federal authorities for its mortgage practices during the housing bubble of the mid-2000s.

JP Morgan Chase file photo

JP Morgan Chase, one of the nation's largest banks and a leading figure in the 2008 financial crisis, is now under a criminal and civil investigation by federal authorities.  The U.S. Attorney's Office for the Eastern District of California, covering an area filled with homes severely affected by the housing bubble collapse of that year, is opening an investigation on the mortgages and mortgage securities JP Morgan sold to homeowners during the subprime mortgage crisis.  JP Morgan's practices are also being investigated in Philadelphia.

Of particular concern to the investigations are the mortgage bonds that JP Morgan traded and sold during the housing bubble.  These mortgages included subprime mortgages, what many consider to be the common cause of the housing bubble and its eventual collapse.  JP Morgan created a significant number of these bonds, which were later found to be toxic and worthless to the company, sold for pennies on the dollar.  The civil investigation has already "preliminarily concluded" that JP Morgan broke the law in its mortgage securities sales, while the criminal investigation has not made any conclusions yet.

JP Morgan disclosed that they were being investigated today during an earnings call.  It comes on the heels of Bank of America being sued by the federal government for defrauding investors more than $850 million through placing their subprime mortgages into a series of complex investments that would later become worthless due to housing prices collapsing.  JP Morgan themselves admitted in May that they probably violated federal law through duping investors into buying risky securities that included these subprime mortgages. 

The pressure is finally on for JP Morgan.  After CEO Jamie Dimon admitted last year that the bank lost $6.2 billion in a series of wild trades, JP Morgan is beginning to take it on the chin, with investigations also developing in Philadelphia regarding its mortgage practices.  The earnings call itself mentioned that they expected nearly $7 billion in losses the previous quarter.  As banks are beginning to come under true scrutiny concerning their behaviors in the years leading up to and after the 2008 crisis, this is a sign that justice may actually prevail on this front. 

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