JPMorgan Chase Dimon : We Did Fed a ‘Favor’ in Buying Bear Stearns

On your knees, little people, and worship Lord Jamie. He did you a favor you ungrateful peasants. 😉 For god sakes, shareholders, vote this man out of his CEO job on your next proxy statement next year!

J.P. Morgan Chase & Co. (JPM) did the Federal Reserve a favor when it bought Bear Stearns & Co. during the height of the financial crisis in 2008, J.P. Morgan’s CEO Jamie Dimon said Wednesday.

“We did them a favor. We were asked to do it and we did it at great risk to ourselves,” Dimon said at an event in Washington held by the Council on Foreign Relations. To avert the collateral damage to the markets from the Bear Stearns collapse, the Federal Reserve provided major government guarantees to assist J.P. Morgan to acquire the institution in March 2008.

Dimon’s comments come after the New York attorney general filed a lawsuit against J.P. Morgan on Oct. 2 for alleged fraud in the sale of mortgage-securities issued by Bear Stearns.

Read more from Marketwatch.

Affidavit (redacted) of Whistleblower from Clayton + Watterson Prime (Mortgage Due Diligence Firm) in Ambac vs. EMC mortgage

Exhibit 15 — Whistleblower Affidavit (Redacted):

Affidavit of Whistleblower from Clayton + Watterson Prime (Mortgage Due Diligence Firm) in Ambac vs. EMC:

…Many of my colleagues at Clayton also lacked underwriting experience and a number of them had held no previous positions in the mortgage industry. I noticed that many senior Clayton employees, such as Deb Medina, hired many of their family members to work as due diligence underwriters, even when they had no experience in the mortgage industry.

…Because of the time pressures, however, many due diligence underwriters at both Clayton and Watterson entered information directly from the loan application (also known as the “1003 form”) or underwriting worksheet (the “1008 form”) without verifying the information by examining supporting documentation. This was known as “1008 underwriting.” In addition to the time pressures, another reason that many Clayton and Watterson due diligence underwriters engaged in 1008 underwriting was because they lacked the experience to question the information on these forms.

In fact, Clayton leads instructed us not to question what was on the 1008 form: “The loan’s already closed. You can’t do anything about it at this point.” I received similar instructions from leads at Watterson, who often told us: “It’s closed. Just approve it and move on, They’re already in the house.” From these instructions, I understood that Clayton and Watterson supervisors wanted me to approve loans without questioning any inaccuracies or departures from the underwriting guidelines.

As a result, due diligence underwriters like me knew that we could avoid having supervisors examine our work so long as we graded the loans as 1s. If we graded loans as 2s or 3s, quality control personnel and leads scrutinized our work and, oftentimes, publicly berated us for assigning that grade. Deb Medina, a Clayton lead, frequently yelled at due diligence underwriters for grading loans as 3s in public. Watterson leads instructed us, “Pass the loan and keep it moving.” By this I understood that I was supposed to approve loans and could quickly move on to the next loan.

Clayton and Watterson leads instructed us to avoid grading loans as 3s. This was true for numerous clients, but especially true on Bear Stearns jobs… due diligence underwriters at both Clayton and Watterson often used the phrase “Bear don’t care.”

…I frequently reviewed loan files that contained documents that appeared to be fraudulent. For example, I reviewed many pay stubs that I believed were fraudulent because they were obviously altered. When I raised this issue to leads at Clayton, they instructed me: “This is not fraud review. Just take it from there.”

 

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How the NY AG built his RMBS case against JP Morgan for Bear Stearns Sins

Teri Buhl reports:

One documentary film maker, one investigative journalist, and one law firm willing to take a risk led to the lawsuit the New York Attorney General just filed against JP Morgan for a system wide effort to defraud mortgage investors by Bear Stearns.

My readers and viewers of RT’s The Keiser Report know they first learned about Bear Stearns fraud back in 2010 after I was the first journalist to report for The Atlantic Bear Stearns whistleblowers were on the record saying they were directed to make up loan level detail for the mortgage bond raters. From there I broke news again at The Atlantic in January 2011 detailing how Bear’s own internal documents showed the RMBS traders, under Tom Marano, were literally stealing billions from the clients they’d sold the mortgage bonds to via a double dipping scheme.

The documents to outline the double dipping by Bear traders was discovered by PBWT attorney Eric Haas – who has also an accounting background. It was this evidence that enabled him to add a fraud claim, that survived a motion to dismiss, to Ambac’s suit and year and a half later JP Morgan had to admit in their regulatory filings for shareholders that they were now looking at $120 billion in possible RMBS fraud and putback suits. These additional suits filed by the FHFA for the GSE’s and tons of other mortgage investors would have never happen if PBWT hadn’t been first to do the gritty research and detail to build their claims against $JPM/$BS/$EMC.

While this is likely the most impactful reporting of my career it couldn’t have happen with out one documentary film maker, Nick Verbitsky of BlueChip Films. He was first to find former EMC/Bear analyst to go on camera and  detail the methods of deceit and fraud by the billions. It was Verbitsky’s unedited interviews that led to my first The Atlantic story. And it was that story to helped open up research for attorneys at Paterson Belknap for their client Amabc.

I remember getting a call notifying me the NY AG’s office had read my reporting and wanted to reach filmmaker Nick Verbitsky to get these unedited whistleblower tapes last year. And then we watched the NY AG slowly start to interview the Bear Stearns whistleblowers which I reported multiple times on RT’s The Keiser Report. A program that was bold enough to trust my reporter instincts, go up against one of the world’s most powerful banks, JP Morgan, and know it was a good idea to warn viewers the bank is going to get their asses sued and it could affect the financial health of the company.

And for an added bonus: The secret mortgage servicers don’t want you to know is they can make MORE money off of homeowners when they keep your loan in default. A former employee of loan servicer EMC mortgage (former Bear Stearns unit) tells the inside story why so many people can’t get their loan out of default. Here is the Youtube video: http://www.youtube.com/watch?v=vxyRFSYe7ws

Teri Buhl reported last year of lawsuit showing more fraud and coverup from Bear Stearns mortgage team

his summer I wrote a story for DealFlow’s The Distressed Debt Report warning more whistleblowers have come forward to spell out how Tom Marano’s mortgage team at Bear Stearns knowingly threw out any form of loan level due diligence while packaging and selling residential mortgage backed securities years before the 2008 financial crisis. When investors complained about early defaults in the RMBS they’d bought from Marano’s traders, the Bear executives simply instructed their servicing and due diligence underlings to massage the numbers or mislead the trustee of the securities about the real health of the loans. Viewers of RT’s The Keiser Report heard me warn this summer about upcoming litigation that would detail the alleged pre-planned scheme designed by Bear’s mortgage team to cheat their own clients in the name of sales and fee revenue –now those details have been made public in an amended complaint filed late Friday by monoline insurer Assured Guaranty against Bear Stearns, EMC, and it’s current owner J.P. Morgan.

“Bear don’t Care” was the mantra spread throughout the halls of outside underwriter firms Bear hired to review the mortgage loans for its residential mortgage securities, says the Assured lawsuit. It spells out a callous disregard to create products that could perform and then shows how Bear allegedly executed a widespread fraud to cover it up when their investors started to question the legitimacy of the product they were sold.

Over 30 whistleblowers from an outside due diligence firm hired by Bear Stearns, Watterson Prime, have come forward since I first warned about possible fraud and criminal acts by the Bear traders in two stories for The Atlantic. But what is really telling is the fact that this complaint has people speaking out from every part of the Bear mortgage securitization machine admitting Team Marano knew from the start the RMBS they were selling to pension funds and the monolines were not packed with gold platted performing loans. Emails obtained by Assured’s lawyers during discovery show Tom Marano sold personal investments in the mortgage insurance companies that are now suing Bear. Yet at the same time, in late 2007, his team was assuring these companies the RMBS they sold them were a quality product. This should be of interest to the New York authorities who I reported are now building a case against his Bear team.

Read more from Teri Buhl.

What Bear Stearns Whistleblowers told the SEC: New Details of RMBS Fraud & Cover Up

Remember all those whistleblowers the monolines found in their RMBS fraud litigation against Bear Stearns and JP Morgan? The ones JPM’s lawyers tried to publicly out their names so they’d be afraid to testify in the monoline’s case. Well the bank’s dirty legal tactic didn’t work and newly released whistleblower testimony from people who worked for third-party due diligence firms, hired by Bear to get the mortgage security insurers to back their bonds, shows a whole another layer of orchestrated deceit. One so bold it borders on mafia like RICO actions.

Filed in Connecticut state court at the end of August by monolines lawyers at Patterson Belknap is a motion to enforce a New York subpoena that calls for RMBS due dilly firm, Clayton Holdings, to turn over the historical loan review reports that were sent to Bear Stearns. The motion is on behalf of Ambac; the RMBS insurer who first brought the explosive fraud suit against Bear Stearns traders for stealing billions from their own clients. You know the one that led to JP Morgan, Bears’ successor, telling investors last quarter they now have at least $120 billion of possible mortgage security putback suits they could be forced to pay out. Well it looks like Abmac wants the public to know more of the dirt they have on Bear/JP Morgan because in exhibits with the motion they filed there’s some nasty whistleblower sworn testimony.

Clayton Holdings along with a firm called Watterson Prime were the main third-party firms Bear hired to do re-underwriting due diligence. According to the monoline suits this extra level of inspection was designed to prevent defective loans getting packed into the security in the first place. In the heyday of the mortgage boom there was so much competition to get the RMBS bonds insured and sold Bear came up with a novel ideal of paying for ‘independent reviews’ that the monolines use to do themselves before they got so busy picking which bonds to insure. It was a process Bear claimed would add a level of integrity. But new sworn testimony by whistleblowers from Clayton and Watterson Prime shows this was just a ‘veneer of control’ instead of a practiced method to fret out defective loans.

What’s worse is when Clayton or Watterson Prime due dilly workers actually found the bad loans and coded them in the system (called CLAS for Clayton) their supervisors would change the coding to reflect the loans were ok. This enabled the Bear Stearns traders working under Tom Marano to hide the fact loans they’d bought, from the banks like Greenpoint or Countrywide, were garbage but still went into the security because allegedly Bear traders didn’t want to spend the time or money to go back to the originators and buy quality loans. If the courts find the whistleblower statements are true, it’s a clear violation of the monoline rmbs insurance contracts along with possible insurance fraud and violations of the Martin Act.

The whistleblowers names are redacted in the filing but they swore they worked for both Clayton and Watterson prime as freelance due diligence consultants on loan file reviews for Bear Stearns mortgage securities. Their job was to take the original loan files EMC had used to pick which loans would go into a security and make sure it fit Bear’s underwriting standards. Their testimony says they’d find a file with borrower documents they thought were fraud, report it to their supervisor (such as Mr. Weeks at Watterson Prime) and the supervisor would say just move it along and overlook the documents.

Read on.

MBIA vs J.P. MORGAN SECURITIES LLC (f/k/a BEAR, STEARNS & CO. INC.) – fraudulent acts and omissions by Defendant’s predecessor-in-interest, Bear, Stearns & Co.

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Federal Judge Makes it Easier for Monolines to win Big Damages in JP Morgan RMBS Putback Suits

The monolines suing JP Morgan for RMBS putbacks got a BIG win today in Federal court. Judge Crotty showed he wasn’t buying the banks fancy legal arguments about needing to show a loan already blew up before you get your money back because you issued reps and warranties that weren’t actually true. This means New York lawyers at Patterson Belknap, under managing partner Philip Forlenza, are going to be really busy filing more monoline suits against JP Morgan now that their test case, Syncora v. EMC (owned by Bear Stearns now JPM), blew through this huge legal hurdle.

Syncora won on their loss causation request but didn’t get the judges stamp on their rescission request. In the hearing last week the puffy-chest Sullivan Cromwell lawyer for JPM, Bob Sacks, told Judge Crotty he didn’t have the ‘right’ to decide on the rescission issue that Syncora asked for; but in today’s decision the Judge flat out reminded Sacks he did. He then punted and said he just wasn’t going to rule on that request now as it’s best suited at trial when all the evidence is presented. Syncora doesn’t really need rescission (since they won on loss causation) to anti-up their negotiating power though. Rescission means the monoline could putback the whole value of the $656 million security if they proved there was a material breach in the reps and warranties.

The only thing we didn’t get out of the ruling is how many triple digit millions Syncora will estimate as damages but it’s going to be a lot more now that it’s not contingent on the loan already being in default.

Read from Teri Buhl’s website.

Syncora Lawyers Could Clear Big Legal Hurdle making JP Morgan pay Billions in Putback Suits

The mortgage crisis litigation team at Paterson Belknap Taylor & Webb had their big RMBS putback hearing yesterday in New York Federal Court. It centered on one of the first monolines, Syncora, to highlight the alleged massive securities fraud Bear Stearns and EMC were engaged in when they sold billions of residential mortgage backed securities to Wall Street investors at the beginning of the financial crisis. Syncora’s lawyers at PBWT were asking for the court to allow them more damages if they can prove there was a material adverse effect in their breach of contract case against the Bear Stearns companies now owned by JP Morgan.

At the center of this highly watched legal debate is whether RMBS investors will have to do the costly legwork to prove exactly which loans were losses and how that loss was caused by a breach of contract. In the case of the $600mn-ish security Syncora is arguing over, that equates to digging through around 10,000 loans – which would delay discovery and be a huge financial burden to the a smaller sized monoline. So instead, PBWT’s Philip Forlenza and Erik Haas are arguing if they can prove the whole Bear Stearns RMBS sausage machine was so corrupt and irresponsible the entire due dilly process was knowingly broken and as a result the humpty dumpty of a RMBS they bought can’t be put back together again then the whole damn securities should be repurchased. In legal terms that means they don’t want the judge to make them prove loss causation for each loan and they want a return of all the money they paid out to investors when the RMBS failed.

JP Morgan’s outside counsel Bob Sacks of Sullivan Cromwell hardly challenged the PBWT lawyer’s legal theory about loss causation and instead led a condescending oral argument ‘telling’ Judge Crotty this isn’t an issue to decide til trial. In other words, it was just another kick the can down the road game by JP Morgan because, as I pointed out a few weeks ago, they don’t want to up their RMBS putback legal reserves and take a hit to regulatory capital levels. Sacks, represented the stereotypical, puffy-chested, arrogant Wall Street lawyer Sullivan Cromwell is known to breed, but I was surprised to see him talk down to the federal judge and insult his seasoned experience with lines like, “Your honor how can you decide on this when they haven’t even presented any evidence yet.” Judge Crotty politely reminded Sacks he does have equity power to make this decision and asked once again if JPM/Bear/EMC’s argument is still the RMBS failed because of the financial crisis and not because of a breach of reps and warranties. And Sacks boldly answered, “YES!”

The notion that no evidence has been presented yet in this case is absurd considering PBWT has brought in over 30 whistleblowers and shown internal emails/memos from Bear Stearns telling its staff to not waste money on loan level due diligence. The whole Sullivan and Cromwell oral argument read like an attempt to deflect from the real legal issues on the table because lawyers like Sacks know how serious this is for JP Morgan’s balance sheet if the judge decides in Syncora’s favor. I emailed Sacks after the hearing asking if he’s usually this arrogant when speaking with a Federal judge but surprise surprise I didn’t get a comment.

Read on.

More Bear Stearns Executives get off without Paying Millions in Shareholder Settlement Cost

Teri Buhl:

Bear Stearns lawyers at Paul Weiss are slapping them self on the back today after stockholders and pension funds who sued Bear executives for misleading them about the health of the company months before it failed agreed to a cash settlement of only $275 million on Wednesday. The suit’s settlement lead by Michigan’s retirement fund, who lost $61 million in the collapse of Bear’s stock in March 2008, is being hailed as the 5th largest class action suit by bank shareholders. But considering the evidence that has come out in the last for years regarding what Bear executives like Tom Marano and Alan Schwartz knew about the health of the firm in late 07 early 08 while they were pushing shareholders to buy more stock this settlement number and the terms tied to it is a joke!

Beside the fact that the Bear executives named in the suit didn’t have to admit guilt neither do they have to take a hit to their fat wallets. According to a person familiar to the settlement the Directors and Officers Insurance Bear held is picking up the whole damn tab. But even if JP Morgan, Bear’s successor owner, wanted to encourage the insurance company to pass on any settlement payment responsiblity to the likes of Tom Marano, Alan Schwartz, Jimmy Cayne, Sam Molinaro, & Ace Greenberg I’m told they can’t.

“At the time of the Bear Stearns merger with JP Morgan the Bear bylaws were changed so that the Bear executives have indemnification rights from JP Morgan,” says securities attorney Brett Sherman.

Some of the most damaging evidence about who at Bear knew what and when came out in the Monoline suits against Bear/JPM, led by attorneys at PBWT, for rmbs fraud and the FCIC report.

Read on.