The National Credit Union Administration (NCUA) filed a major mortgage-backed securities lawsuit against J.P. Morgan Securities and Bear Stearns & Co. over billions of losses that allegedly caused the closing of four credit unions.
The organization says the NCUA sued after having to cover losses stemming from the credit unions' failures.
The NCUA alleges Bear Stearns (now a part of JPM) misrepresented the quality of the underwriting on the sale of $3.6 billion in MBS to four different credit unions—U.S. Central, Western Corporate, Southwest Corporate and Members United Corporate.
The suit, which was filed in a Kansas federal district court on Monday, alleges the four corporate credit unions collapsed after facing significant losses on mortgage-backed securities acquired from Bear Stearns. Bear Stearns was taken over by JPMorgan in 2008.
"Bear Stearns was one of several Wall Street firms that sold faulty securities to corporate credit unions, leading to their collapse and enormous losses across the industry," said NCUA board chairman Debbie Matz. "Firms like Bear,Stearns acted unfairly by ignoring the rules for underwriting. They packaged these securities and then told buyers the paper was sound. When the securities plunged in value, we learned the truth. NCUA is now working to hold these underwriters accountable and secure recoveries on behalf of federally insured credit unions."
The lawsuit claims Bear Stearns misrepresented or omitted material facts about the securities in offering documents.