J.P. Morgan Chase has agreed to settle securities fraud charges for $153.6 million. According to the lawsuit, J.P. Morgan had willfully misled investors in the days leading up to the stock market collapse of 2008. The company had failed to inform investors that the client that had set up the portfolio stood to profit if it failed. Among the investors who lost millions in this fraud were General Motors auto workers and a Lutheran financial organization.
As part of the settlement, investors who lost their money will get their money back, while J.P. Morgan will try and improve the manner in which it approves mortgage securities transactions.
The JP Morgan Chase penalty is the highest since Goldman Sachs’ settlement last year. However, it’s important to put the settlement in context. The settlement is so small, that it is expected to be absorbed by the company without it affecting J.P. Morgan’s second quarter earnings.
It comes just a year after Goldman Sachs paid $550 million to settle similar charges. In the case of Goldman Sachs, the settlement was just about 5% of Goldman Sachs’ total income of $12.2 billion in 2009. That was after payment of dividends to preferred shareholders. Goldman Sachs had also been accused of promoting mortgage investments without telling buyers that the investment has been set up by a client who was betting on them to fail.
California securities fraud lawyers expect other companies to be charged with securities fraud in the days to come. The Securities and Exchange Commission has been investigating a number of transactions made in the weeks and months leading up to the financial crisis of 2008.