JPMorgan to pay $153.6 million for fraud

JPMorgan Chase has agreed to pay $153.6 million to settle the charges that it misled investors in a mortgage bond deal filed by the U.S. Securities and Exchange Commission.

The SEC filed a complaint before the U.S. District court for the Southern District of New York seeking compensation for the affected investors. According to The Wall Street Journal, JPMorgan failed to inform its investors that the hedge fund Magnetar Capital LLC was influential in the selection of the collateral in the portfolio that the investors bought, and if the deal failed the hedge fund was set to profit.

InAudit reported that the deal closed in May 2007, just as the U.S. housing market began to show distress. Aware that it was going to lose money in the deal, JPMorgan began frantically sell mortgage securities globally. According to the news source, JPMorgan sold $150 million notes of the portfolio's liabilities to over a dozen institutional investors who lost almost their entire investment.

JPMorgan agreed to a permanent injunction and will pay financial penalties. Of the $153.6 million, $125.87 million will be returned to the investors and $27.72 million will be paid to the U.S. Treasury. The banking corporation is also ordered to change its review and approval process for certain mortgage securities.  

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