JP Morgan will pay $153.6 million to settle charges it deceived customers about complex mortgage-related securities it sold to them in 2007 just as the housing market was souring, the Securities and Exchange Commission said Tuesday.
As part of the agreement, JP Morgan will pay $153.6 million in restitution and penalties, and is admitting no guilt. Separately, the SEC has charged Edward Steffelin, the investment advisor who selected the mortgage portfolio in question.
The SEC said JP Morgan told investors the financial products they were buying, known as collateralized debt obligations, had been chosen by an independent third party. But, the SEC claims, a large hedge fund, Magnetar Capital, played a big role in designing the mortgage-related securities so they would fail, allowing Magnetar to bet against the housing market.
"By failing to disclose this information, we allege that JP Morgan acted negligently in violation of securities laws," said Robert Khuzami, Director of the SEC's Division of Enforcement.
The case is similar to one brought by the SEC against Goldman Sachs last year.
Among the harmed parties were Thrivent Financial for Lutherans, General Motors Asset Management, and several banks in East Asia. Under the terms of the settlement, JP Morgan will compensate them for their losses.
Separately, the SEC has charged Edward Steffelin, the investment advisor with GSC Capital Corp., who selected the mortgage portfolio in question, known as Squared CDO 2007-1.