Bond-insurer Assured Guaranty Corp. has sued JPMorgan over mortgage securities that Assured says JPMorgan misrepresented.
It is suing JPMorgan because of the actions Bear Stearns took in the last decade. JPMorgan took over the remnants of Bear Stearns during the financial crisis.
Specifically, Assured Guaranty is alleging Bear Stearns committed fraud with regards to the mortgage-backed securities known as SACO I Trust 2005-GP1. The transaction was executed in September 2005.
Assured Guaranty claims that Bear Stearns retained underwriters to review mortgages for the securities who among themselves used the phrase, “Bear don’t care.” Bear Stearns pressured the underwriters to approve large numbers of mortgages to people whose ability to repay were unknown or questionable, Assured Guaranty states.
Among other things, the suit asks for compensatory and punitive damages to be assessed against JPMorgan.
This is the third active suit by Assured Guaranty against JPMorgan in the Manhattan branch of the Supreme Court of New York.
In 2008, Assured Guaranty sued J.P. Morgan Investment Management Inc. concerning Assured’s guarantee of notes supporting a reinsurance transaction involving a captive special-purpose vehicle named Orkney Re II p.l.c. JPMorgan was the investment manager of Orkney. According to Assured, JPMorgan was “reckless” by putting the assets in “undiversified, highly risky subprime mortgage-backed securities.”
In 2010, Assured filed a suit against JPMorgan with regards to Assured’s insurance on Jefferson County, Ala., sewer warrants. In the suit, the insurer alleges that JPMorgan paid bribes to Jefferson County commissioners in exchange to be appointed as lead underwriter for the warrants and to gain the approval of a swap agreement between JPMorgan and the county.
If JPMorgan had not concealed the bribes, Assured Guaranty would not have issued the insurance policies, the company states. Jefferson County has since defaulted on the warrants, making Assured cover them.
JPMorgan declined to comment for this story.