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New York Attorney General Eric Schneiderman is looking into the mortgage securities practices of at least a dozen financial institutions that have agreed to suspend a deadline for him to bring fraud claims, according to a person familiar with the matter.
Schneiderman, who sued JPMorgan Chase & Co. (JPM) this week for defrauding mortgage bond investors, has so-called tolling agreements with 12 institutions that preserve claims that could expire during a state investigation, according to the person, who declined to be named because the matter isn’t public.
Schneiderman is the co-chairman of a state-federal taskforce that is investigating misconduct in the bundling of mortgage loans into securities in the run-up to the financial crisis. The group includes the U.S. Securities and Exchange Commission and the Justice Department, and the JPMorgan case was its first legal action.
The tolling agreements, reached this year, stop the clock on the six-year statute of limitations and ensure Schneiderman can bring civil fraud claims against banks for conduct going as far back as 2006, said the person. The agreements don’t necessarily mean that suits will be filed, the person said.
JPMorgan, based in New York, is one of the 12 financial institutions that have tolling agreements. The names of the others couldn’t be learned.
In the lawsuit against JPMorgan, Schneiderman said Bear Stearns, which JPMorgan took over in 2008, deceived investors about defective loans backing mortgage bonds, resulting in “monumental losses.”
The attorney general said in a conference call with reporters after the JPMorgan lawsuit was filed that investigations continue and that other cases would be filed over mortgage securities.
“We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview with Bloomberg Television. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”
The top five issuers of mortgage securities without government backing in 2006 included Bank of America (BAC) Corp.’s Countrywide Financial unit, Bear Stearns and Washington Mutual, also since acquired by JPMorgan, according to trade publication Inside MBS & ABS.
A Credit Suisse Group AG (CSGN) unit was sued yesterday by a national credit union regulator that accused the bank of selling faulty mortgage-backed securities to three credit unions, causing them to collapse.
Credit Suisse Securities misrepresented the securities’ risks, leading the credit unions to believe there was little chance of losing money when they bought $715 million worth of them, the National Credit Union Administration said in a complaint filed in federal court in Kansas City, Kansas.
The securities were sold to U.S. Central Federal (CFBK) Credit Union, Western Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. All three failed and resulting losses are paid by a fund supported by assessments on all federally insured credit unions, NCUA said in a statement.
Jack Grone, a spokesman for Credit Suisse in New York, declined to comment on the lawsuit.
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