[NEW YORK] JPMorgan Chase & Co has agreed to pay US$500 million to end more than six years of class action litigation over Bear Stearns' sale of US$17.58 billion of mortgage securities that proved defective during the U.S. housing and financial crises.
The all-cash settlement was made public late Monday, and requires approval by US District Judge Laura Taylor Swain in Manhattan.
It resolves claims that Bear, which JPMorgan bought in 2008, misled investors when it sold certificates backed by more than 47,000 largely subprime and low documentation "Alt-A" mortgages in 14 offerings from May 2006 to April 2007.
Bear was accused of making false and misleading statements in offering documents about underwriting guidelines used by its EMC Mortgage unit, Countrywide Home Loans, Wells Fargo and other lenders, and the accuracy of associated property appraisals.
While Bear was not accused of fraud, investors sought to hold it strictly liable and negligent for their losses. They said that while most of the certificates were once rated"triple-A," at least US$16.96 billion fell to "junk" status.
JPMorgan denied wrongdoing in agreeing to settle. The largest US bank will pay an additional US$5 million to cover administration costs.
A JPMorgan spokesman declined to comment.
The accord is separate from JPMorgan's US$13 billion settlement with regulators in November 2013 over mortgage securities sales.
It was announced three days after the New York-based bank agreed to pay US$99 million plus $500,000 for costs to resolve litigation accusing it of conspiring with rival banks to rig prices in the foreign exchange market.
Investors in the Bear lawsuit were led by the Public Employees' Retirement System of Mississippi and the New Jersey Carpenters Health Fund.
Their lawyers, led by Bernstein Litowitz Berger & Grossmann and by Cohen Milstein Sellers & Toll, plan to seek legal fees of up to 17 per cent of the settlement amount.
JPMorgan has resolved similar litigation over mortgage offerings from the former Washington Mutual Inc. It still faces litigation over some of its own mortgage offerings.