February 21, 2013

The U.S. Justice Department is investigating JPMorgan Chase & Co over allegations that Bear Stearns provided misleading information about its mortgage products during the lead-up to the financial crisis, according to people familiar with the matter.

JPMorgan acquired Bear Stearns in a 2008 fire sale encouraged by the government, and has pushed back against various government suits that have sought to hold JPMorgan accountable for the failed investment bank's alleged mortgage-related misconduct.

In this investigation, civil lawyers in the Justice Department are looking into whether Bear Stearns altered due diligence information that third parties provided about the quality of mortgage loans packaged into securities, said the people, who were not authorized to speak publicly about the probe.

The investigation, which is in early stages, shows that enforcement authorities are still actively building cases amid criticism that institutions have not adequately been held to account for their role in causing the 2007-2009 financial crisis.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment. DOJ spokeswoman Adora Andy also declined to comment.

The Justice Department last year issued more than a dozen civil subpoenas to top financial institutions as part of an inquiry into the packaging and sale of home loans.

Pending inquiries at the Justice Department are largely an outgrowth of a state-federal initiative known as the Residential Mortgage-Backed Securities Working Group, which President Barack Obama announced during his 2012 State of the Union speech.

One of the co-chairs of the group, New York Attorney General Eric Schneiderman, already sued JPMorgan for fraud over Bear Stearns' packaging and sale of mortgage securities in the run up to the financial crisis.

It is unclear whether the recent Justice Department investigation into JPMorgan will result in enforcement action or might merge with mortgage-related probes by other agencies.

In a sign of how important the department appears to view these cases, the JPMorgan inquiry involves lawyers close to acting associate attorney general Tony West, according to people familiar with the matter.

West led the department's civil division until last February when he was promoted to his current post as the agency's third in command.

In another sign U.S. authorities are actively pursuing mortgage-related inquiries, the inspector general's office of the Federal Housing Finance Agency is hosting a training session this week with members of the RMBS working group, including federal prosecutors, members of the Federal Bureau of Investigation, special agents and others, a person familiar with the training said. The group has held several similar sessions in the past year, the person said.

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