US starts criminal inquiry against JP Morgan over subprime sales

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The Independent Online

The US government is conducting both civil and criminal investigations into the way JP Morgan Chase sold certain mortgage-backed securities in the run up to the financial crisis, the bank has revealed.

The inquiries came to light in a regulatory filing by the bank. JP Morgan said the civil division of the US Justice Department had come to a preliminary conclusion that the bank violated federal civil laws in sales of subprime mortgage securities from 2005 to 2007. The investigations are being conducted by the US Attorney's Office in Eastern District of California.

The scrutiny is the latest legal headache for the bank, which has spent the past year trying to deal with the fallout from the so-called "London Whale" trading fiasco that triggered a loss of around $6bn (£4bn). The botched trades turned the spotlight on management practices at the giant American bank, the biggest in the country in terms of its assets.

Earlier this year, some shareholders called for the bank's chief executive, Jamie Dimon, to be stripped of his dual role as chairman. They were ultimately unsuccessful, however, with their proposal being defeated at the bank's annual meeting.

News of the parallel criminal and civil investigations into JP Morgan comes on the heels of a federal lawsuit against Bank of America over the sale of $850m worth of residential mortgage-backed securities.

Announcing the case against Bank of America, the US Attorney General, Eric Holder, said the US government would be aggressive with lenders as it looks over their actions in the run-up to the crisis.

"President Obama's Financial Fraud Enforcement Task Force will continue to take an aggressive approach to combating financial fraud and uncovering abuses in the residential mortgage-backed securities market," he said. "We will... use every tool, resource, and appropriate authority to ensure stability, accountability, and – above all – justice for those who have been victimised."

Bank of America, in its statement responding to the case, said the mortgages in question were of a higher quality, or "prime," and sold to sophisticated investors who had ample access to the underlying data". "We will demonstrate that," it added.