By Peter Schroeder - 10/01/12 11:56 PM EDT
The head of President Obama's mortgage fraud task force has filed suit against JPMorgan over widespread fraud in the marketing and selling of mortgage-backed securities.
New York Attorney General Eric Schneiderman filed suit in the state's supreme court Monday, charging the banking titan with "systemic fraud" in the packaging, marketing, and selling of securities backed by residential mortgages. The suit marks the first of its kind filed by Schneiderman against a bank since being charged by Obama with sniffing out mortgage fraud in the buildup to the financial crisis.
Schneiderman claims in his suits that the risky loans recklessly packaged into securities led to "tremendous losses" for investors. In 2006 and 2007, the "astounding" losses totaled about $22.5 billion, which is good for over one-quarter of the original principal balance of all those types of bonds issued by Bear Stearns. JPMorgan is facing charges since it acquired a business under Bear Stearns when it bought the investment bank as it teetered during the financial crisis.
The charges mark the first major legal action taken by a task force devoted to mortgage fraud the president announced during his 2012 State of the Union Address.
"This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans," he said.
Wall Street reform advocates and liberals were heartened when Obama tapped Schneiderman, who had built a name for his tough stance toward the banking system, to lead the team within the Justice Department. But as the months passed, that hope led to grumbling as the unit produced few visible results and was assigned a staff some thought to be insufficient, leading many to wonder if any charges would ever emerge from the wreckage of the financial meltdown.
Dennis Kelleher, president and chief executive officer of Better Markets, a nonpartisan Wall Street reform group, in April called the unit "a joke."
On Monday, he hit a note of relief.
"“Finally! A major Wall Street bank has been sued for fraud for its reckless lending that helped cause the 2008 financial collapse," he said in a statement. "Hopefully this lawsuit is the first of many and the lawbreakers on Wall Street will be punished like everyone else in American when they break the law.”
A spokesperson for JPMorgan did not immediately respond to a request for comment, and the White House declined to comment.