February 21, 2013

The DOJ inquiry into the due diligence performed for Bear Stearns tracks accusations detailed in private lawsuits against the bank.

Bear Stearns hired Mortgage Data Management Corp to review a sample of loans in a 2006 mortgage securitization, according to a case filed against JPMorgan last year by bond insurer MBIA Inc .

Reviewers concluded that around one-third of the loans had serious credit and compliance problems, the lawsuit said.

But Bear Stearns altered the electronic spreadsheets to conceal the problems, according to the lawsuit, which was filed in New York State Supreme Court.

Bear Stearns removed 50 columns of information from the spreadsheet that showed the issues and then sent the altered report to MBIA, the lawsuit said.

In its answer to the MBIA complaint, JPMorgan denied the allegations that it had altered the spreadsheets. That case is pending.

LATEST LEGAL HEADACHE

JPMorgan has recently been hit by a wave of lawsuits over the conduct of Bear Stearns that appear to have some overlap.

New York's case, filed in October, accuses Bear Stearns of causing some $22.5 billion in losses to investors of mortgage-backed securities by failing to ensure the quality of the underlying loans.

In December, the U.S. credit union regulator sued the bank over $3.6 billion in securities sold by Bear Stearns.

And in November, JPMorgan paid $296.9 million to settle a case with the U.S. Securities and Exchange Commission that accused Bear of failing to disclose it had arranged discounted cash settlements with originators that left investors stuck with problem loans. The SEC also accused JPMorgan itself of overstating the quality of home loans that backed a $1.8 billion residential mortgage-backed securities offering it underwrote in 2006.

The bank's chief executive Jamie Dimon has said the bank is continuing to pay the price for doing "a favor" for the Federal Reserve in agreeing to rescue Bear Stearns.

The inquires are the latest legal headache for JPMorgan, which also faces separate investigations from a trading loss of $6.2 billion that sprung from a botched hedging strategy carried out in its London office, and inquiries into whether its traders manipulated benchmark interest rates.

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