Insurance giant Allstate
is suing JPMorgan Chase (JPM)
and subsidiaries Bear Stearns
and Washington Mutual
for fraudulently selling the insurer more than $750 million in residential mortgage-backed securities backed by toxic loans.
In its complaint
, Allstate alleges the defendants "made numerous misrepresentations and omissions regarding the riskiness and credit quality" of the loans backing the securities sold as part of the transaction. JPMorgan Chase acquired Bear Stearns and Washington Mutual -- along with the banks' assets -- back in 2008 when the housing meltdown hit. While both firms are technically defunct, each still has structured finance trading platforms unwinding.
Allstate issued a statement about the suit Wednesday saying the offerings made by the financial institutions "contained untrue statements and omitted material facts." The insurer said, "Between 2005 and 2008, Allstate purchased more than $750 million in mortgage-backed securities from those defendants."
Allstate alleges the banks roped the insurance giant into the transaction by suggesting the securities marketed by JPMorgan, Bear Stearns and WaMu were backed by highly-rated mortgage securities.
Instead, Allstate says JPMorgan's securities hid a "toxic mix of loans given to borrowers that could not afford the properties" and who were likely to default, according to the complaint.
Allstate claims in its suit that the banks also failed to disclose reports from underwriters and third-party due diligence firms that had previously identified loans in the portfolio as not in compliance with underwriting guidelines.
JPMorgan could not immediately respond to requests.
Write to Kerri Panchuk.