JPMorgan Securities to Settle Fraud Charges

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J.P. Morgan Chase will pay more than $150 million to settle charges the firm misled investors about the riskiness of the mortgage backed securities that it was selling. The Securities and Exchange Commission says J.P Morgan Securities designed the packages to do poorly and then hid that fact from investors. The company neither confirms nor denies the allegations.


J.P. Morgan Chase, agreed yesterday, to pay more than $150 million to settle federal charges. Prosecutors say the bank misled investors about mortgage-related securities it was selling.

NPR's Jim Zarroli reports.

JIM ZARROLI: The Securities and Exchange Commission said J.P. Morgan Securities sold a complex mortgage backed security to a group of institutional investors in 2007. But it allegedly failed to tell the investors that the mortgages underlying the security had been selected by a hedge fund called Magnetar, and Magnetar had shorted some of those mortgages, which means it bet they would fail, says SEC Enforcement director Robert Khuzami.

Mr. ROBERT KHUZAMI (Director of Enforcement, SEC): In truth, Magnetar capital played a substantial role in the selection of those mortgage assets and stood to profit from the failure of the assets in the CDO portfolio.

ZARROLI: But the SEC says investors were unaware of Magnetars involvement. The SEC also filed charges against Edward Steffelin, an executive at an investment advisory firm involved in the deal. U.S. officials said Steffelin allowed Magnetar to help select the assets because he was hoping to get a job at the hedge fund. His lawyers said the charges against Steffelin were baffling, and he said his client played no part in the selection of the underlying mortgages.

The SEC said investors harmed in the deal will get their money back. J.P. Morgan Chase agreed to the settlement without admitting any wrongdoing. The $153 million payout represents less than one percent of the banks net income last year.

Jim Zarroli, NPR News, New York.

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