JPMorgan Chase & Co., the largest U.S. bank, said it's under federal criminal investigation for practices tied to sales of mortgage-backed bonds that the Justice Department has already concluded broke civil laws.
The department's civil division told 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 to 2007, JPMorgan said Wednesday in a filing. The U.S. attorney's office led by Benjamin Wagner in Sacramento, Calif., has been conducting civil and criminal inquiries, the filing shows.
"It would be a major decision for them to indict a major U.S. bank, and frankly I would not predict it," said John Coffee, a professor at Columbia Law School in New York. "You can often bring dual investigations, civil and criminal, in order to maximize pressure for a global civil resolution."
Investigators are seeking to wrap up yearslong probes of abuses that fueled the housing collapse and prompted global credit markets to freeze in 2008. On Tuesday, the Justice Department and Securities and Exchange Commission sued Bank of America Corp., the nation's second-biggest lender, accusing the firm of misleading investors in an $850 million mortgage-backed bond in 2008.
"Whether they are waking up belatedly to the public's need for retribution or looking at the expiration of the statute of limitations, they are reaching similar decisions about Bank of America and JPMorgan," Coffee said in an interview.
Like with Bank of America, the U.S. is investigating JPMorgan under the Financial Institutions Reform, Recovery and Enforcement Act, according to a person briefed on the matter. The 1989 law allows the government to seek civil penalties for losses to federally insured financial institutions.
Lauren Horwood, a spokeswoman for Wagner in Sacramento, declined to comment about the bank's disclosures.
JPMorgan "continues to respond to other MBS-related regulatory inquiries," the New York-based company wrote in the filing. Federal and state authorities have sent subpoenas and inquiries about its origination and purchase of mortgages, and the packaging of debts into bonds, the bank said.
