The Residential Mortgage Backed Securities (RMBS) Working Group members today announced their first legal action since the working group formation earlier this year. In his role as a co-chair of the RMBS Working Group, New York Attorney General Eric T. Schneiderman has filed a Martin Act lawsuit against J.P. Morgan Securities LLC (formerly known as Bear Stearns & Co. Inc.), JP Morgan Chase Bank N.A., and EMC Mortgage LLC (formerly known as EMC Mortgage Corporation) for making fraudulent misrepresentations and omissions to promote the sale of residential mortgage-backed securities (RMBS) to investors. According to Attorney General Schneiderman’s lawsuit, these defendants deceived investors as to the care with which they evaluated the quality of mortgage loans packaged into residential mortgage-backed securities prior to Bear Stearns & Co’s collapse in early 2008, incurring losses that have totaled approximately $22.5 billion to date
This lawsuit is the first legal action from the RMBS Working Group, a state-federal task force created by President Obama earlier this year to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. New York Attorney General Schneiderman was joined in the announcement by RMBS Working Group Co-Chairs: U.S. Attorney for the District of Colorado John Walsh, Assistant Attorney General for the Criminal Division Lanny Breuer, Acting Assistant Attorney General for the Civil Division Stuart Delery and Director of the U.S. Securities and Exchange Commissions’ (SEC) Enforcement Division Robert Khuzami as well as RMBS Working Group Members Acting Associate Attorney General Tony West, Housing and Urban Development (HUD) Secretary Shaun Donovan and Federal Housing Finance Agency (FHFA) Inspector General Steve Linick.
“This lawsuit will bring accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Attorney General Schneiderman. “Our lawsuit demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. We believe that this is a workable template for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes. We need real accountability for the illegal and deceptive conduct in the creation of the housing bubble in order to bring justice for New York’s homeowners and investors.”
RMBS Working Group members contributed significantly to this effort. The Federal Housing Finance Agency Inspector General played a key role, providing investigators and lawyers who reviewed countless documents and interviewed many witnesses. the SEC made crucial contributions, both in sharing its expertise with working group members and in giving members access to substantial evidence in its investigations.
The Department of Justice provided 11 Assistant U.S. Attorneys from offices all over the United States who interviewed more than 40 significant market participants. Three civil attorneys and a financial analyst from the department’s Civil Division, two financial analysts from the RMBS Working Group’s Coordination Team, and a paralegal from the U.S. Attorney’s office in the Eastern District of Texas reviewed more than 50 deposition transcripts taken in other litigation for significant evidence. In addition, the Department of Justice provided 12 investigative analysts to review millions of pages of documents and the department’s Civil Division conducted additional interviews of critical witnesses in support of New York’s investigation.
“This announcement demonstrates that the RMBS Working Group model works,” said RMBS Co-Chair and U.S. Attorney for the District of Colorado John Walsh. “The Department of Justice, including U.S. Attorney's Offices across the country, the Office of the Inspector General for the Federal Housing Finance Agency and the SEC were proud to offer their extensive expertise and commit substantial resources in order to assist the New York Attorney General’s efforts. This filing is a testament to the unity of purpose brought to bear by the RMBS Working Group and what is possible when we work together to achieve justice for all Americans.”
“Fannie Mae and Freddie Mac purchased residential mortgage-backed securities from the defendants and were allegedly misled about the quality of the loans supporting those securities. Actions like this contributed to the financial crisis and those who engaged in such activities should be held accountable,” said FHFA Inspector General Steve Linick. “My office has worked and continues to work very closely with the RMBS Working Group and the New York Attorney General’s Office in support of the investigation and prosecution of RMBS fraud cases.”
The RMBS Working Group is one of eight working groups within President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The FFETF is chaired by U.S. Attorney General Eric Holder and with its more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.
More than 200 RMBS Working Group members are on the job, devoting significant resources to investigate and prosecute misconduct by financial institutions in the origination and securitization of mortgages. Work is being done right now by state and federal working group members across the country on active investigations. The RMBS Working Group Coordinator is Matt Stegman. For more information about the RMBS Working Group and the Financial Fraud Enforcement Task Force, please visit: www.stopfraud.gov .