JPMorgan to Pay $614 Million in U.S. Mortgage Fraud Case
February 5, 2014 3:09 PM EST
JPMorgan Chase & Co(JPM.N) settled the latest in a string of legal claims on Tuesday when it agreed to pay $614 million to the U.S. government and admitted that it defrauded federal agencies by underwriting sub-standard mortgage loans.
People walk inside JP Morgan headquarters in New York. (Reuters)
JPMorgan, the largest U.S. bank by assets, said as part of the settlement that for more than a decade it approved thousands of insured loans that were not eligible for insurance by the Federal Housing Administration or the Department of Veterans Affairs, according to court papers.
As a consequence, "both the FHA and the VA incurred substantial losses when unqualified loans failed and caused the FHA and VA to cover the associated losses," the U.S. Justice Department said in a statement.
JPMorgan is one of several banks that has faced similar allegations. Citigroup Inc (C.N) and Deutsche Bank AG (DBKGn.DE) have also reached settlements, while the Justice Department is seeking $2.1 billion in penalties from Bank of America Corp (BAC.N) after a jury found the bank liable for fraud over mortgages sold by its Countrywide unit.
Last year, JPMorgan agreed to about $20 billion in settlements in its drive to clear up legal claims. The deals covered claims over other mortgage issues, as well as derivatives and power trading.
The latest settlement was filed in U.S. District Court for the Southern District of New York and was approved by Judge J. Paul Oetken, according to a statement from the U.S. Attorney's Office in Manhattan.
The bank said in a statement that the "settlement represents another significant step in the firm's efforts to put historical mortgage-related issues behind it."
It added that it has already recorded reserves for the settlement and does not expect the deal to have any significant additional financial impact.
The settlement with the Justice Department began with a whistleblower, Keith Edwards, who sued JPMorgan in January 2013 under an anti-fraud law known as the False Claims Act. The law allows individuals to sue government contractors and suppliers for defrauding taxpayers. Whisteblowers can keep a slice of the penalty if successful.
It has not been determined what Edwards' share will be, according to court papers. The existence of his suit was sealed until Tuesday.
The office of Preet Bharara, the U.S. attorney in Manhattan whose staff worked with Edwards on the suit, said the case was one of eight civil fraud suits that it had brought since May 2011 alleging fraudulent lending practices by residential mortgage lenders.
In other recent legal claims, JPMorgan on Monday agreed to pay $1.45 million to settle four-year-old allegations brought by the U.S. Equal Employment Opportunity Commission that the bank had maintained a sexually hostile environment for women in a mortgage loan center on Ohio.
On Tuesday a federal bankruptcy judge approved the bank's $543 million deal to end two private lawsuits stemming from its relationship with convicted Ponzi scheme mastermind Bernard Madoff. Last month, the bank separately agreed to pay more than $2 billion to settle criminal charges related to the Madoff fraud.
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