By Carla Ghosn, CEO of Caal (mycaal.com).
The investment giant JP Morgan has conceded to forking out over $150 million in order to settle US regulatory allegations that it deceived pension funds and various other investors while in the process of selling a product connected to risky home loans in the midst of a housing market crash. The investment bank was charged with allegedly selling $1.1 billion in home loan-backed securities that were engineered to fail.
Does anyone out there really find this kind of thing surprising any longer? In the wake of the financial crisis and the woes experienced in the housing market, cases of criminal and unethical behavior amongst the country’s top banks seems to be becoming the norm rather than the exception.
According to the US Regulator, as the housing market took a tumble around the end of March 2007, JP Morgan ‘big-wigs’ promoted the marketing of Squared CDO 2007-1, an artificial collateralized debt obligation (or CDO) connected to collection of home loans, while failing to inform the relevant investors that a hedge fund assisted with the selection of the assets in the CDO portfolio and that it had a short position relevant to over 50% of those assets. Magnetar Capital, the hedge fund in question, was therefore effectively positioned to reap rewards in the event of the CDO assets going into default.
JP Morgan brazenly went about promoting highly-complicated CDO investments to investors while making promises that home loan assets underlying the CDO would be chosen by an objective manager that had the interests of the investors as the top priority. What JP morgan conveniently forgot to tell investors was that a major hedge fund stood to gain if the assets these investors were duped into investing in, failed. Just a little innocent oversight on the part of JP Morgan. They surely had no deliberate intention of making a few hundred million bucks as a result of screwing over naive and trusting investors…right?
The director of the SEC, Robert Khuzami, stated that the settlement would mean that investors would receive full compensation for the wealth that they were swindled out of. According to the SEC, Magnetar held a short position of $600 million that completely overshadowed its long position of just less than $9 million. As stated further by the SEC, as opposed to closing the deal, JP Morgan continued to promote the failed investment opportunity to institutional investors in an attempt to side-step further losses in excess of its existing forty million dollar mark-to-market loss.
In a statement released by JP Morgan, the bank said that it was pleased to have arrived at an understanding with the SEC that allowed it to place the situation related to “certain 2007 disclosures” conveniently in the past. As part of its effort to settle the charges of fraud launched against it, JP Morgan has also agreed to improve its methods of reviewing and approving home loan securities transactions. Wow…how noble of them.
What it amounts to is just another blemish on the reputations of big banks in the United States…reputations which have already become thoroughly soiled. The unfortunate reality is that investors can not exercise too much caution when dealing with these white collar crooks.
About Carla Ghosn
|I am CEO and Founder of Caal (mycaal.com) keen on helping American homeowners save their home, save their dream. If you need help with your loan modification, visit www.mycaal.com to see how Caal assists you in pre-qualifying your loan for approval, as well as preparing and printing your loan modification package online.|