On Wednesday, JPMorgan Chase
& Co. revealed that it is under parallel federal criminal and civil investigations
for sales of certain mortgage-backed securities.
In a quarterly regulatory filing,
the bank disclosed that the civil division of the Department of Justice alerted
the bank in May of its preliminary finding after examining securities tied to
subprime and Alt-A loans, which were sold to investors from 2005 through 2007.
The office of U.S. Attorney’s office for Eastern District of California
has been conducting the parallel criminal inquiries, the bank said.
The DOJ is
investigating JPMorgan under the Financial Institutions Reform, Recovery and
Enforcement Act, known as FIRREA. The 1989 law, allows the government to seek
civil penalties for losses to federally insured financial firms.
According to the regulatory filing
outlining the investigations, JPMorgan “continues to respond to other MBS-related
regulatory inquiries.” Federal and state authorities have sent subpoenas and
requests for information about its origination and purchase of mortgages, and
the packaging of debts into bonds, the bank said.
The investigation
is focused on the “treatment of early payment defaults, potential breaches of
securitization representations and warranties, reserves and due diligence in connection
with securitizations,” according to the filing.
Federal prosecutors are usually reluctant
to bring criminal charges against a large bank because of the potential effect
on national or global economies. According to recent statements to a Senate
Judiciary Committee by U.S. Attorney General Eric Holder, “It has an inhibiting
impact on our ability to bring resolutions that I think would be more
appropriate.”