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JPMorgan to settle securities fraud charges

A JPMorgan Chase affiliate will pay $153.6 million to settle charges it misled investors in a mortgage securities deal as the housing market bubble was collapsing, regulators said Tuesday.

The Securities and Exchange Commission said that JP Morgan Securities, one of the Wall Street bank’s broker-dealer affiliates, has agreed to repay fully the harmed investors.

“In settling the SEC’s fraud charges, JP Morgan also agreed to improve the way it reviews and approves mortgage securities transactions,” the markets watchdog agency said.

The SEC alleged that JPMorgan developed and marketed a complex financial instrument — collateralized debt obligation — “without informing investors that a hedge fund helped select the assets in the CDO portfolio and had a short position in more than half of those assets.

“As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.”

The CDO — known as Squared CDO 2007-1 — was tied to the US residential housing market, where prices had begun to plummet following the subprime mortgage crisis.

The SEC alleged that in March and April 2007, JP Morgan knew it faced growing financial losses amid the signs of distress in housing market and then launched a “frantic” global sales effort that went beyond its traditional customer base for mortgage securities.

According to the regulator, the JP Morgan employee in charge of Squared’s global distribution said in a March 22, 2007, e-mail that “we are so pregnant with this deal — Let’s schedule the cesarian (sic), please!”

By 10 months later, the securities had lost most or all of their value, the SEC said.

JPMorgan did not admit or deny the allegations, the SEC said. The settlement agreement is subject to court approval.

Adapted from Yahoo Finance.

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