BlackRock Inc., the world’s biggest money manager, won dismissal of a lawsuit brought by two pension funds that accused the company of collecting “grossly excessive” compensation from securities-lending returns linked to iShares Inc., Bloomberg News reported yesterday. U.S. District Judge Aleta Trauger said that the law governing securities lending doesn’t authorize investors, like the pension funds, to sue. The suit was filed in January by Laborers Local 265 Pension Fund, based in Cincinnati, and Plumbers and Pipefitters Local No. 572 Pension Fund, of Nashville. The pension funds alleged that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation. Judge Trauger gave the pension funds until September 17 to file an amended complaint.
The U.S. Senate Permanent Subcommittee on Investigations asked energy-market regulators to hand over “key documents” from a probe of JPMorgan Chase & Co. as lawmakers examine banks’ roles in commodities markets, Bloomberg News reported yesterday. Sen. Carl Levin (D-Mich.), who leads the panel, and Sen. John McCain (R-Ariz), its ranking Republican, sent a letter to the Federal Energy Regulatory Commission seeking records from the agency’s inquiry and settlement with JPMorgan, according to a copy of the Aug. 2 request obtained by Bloomberg News. The lawmakers asked the FERC to include a 70-page document outlining investigators’ findings, which was cited in articles by the New York Times. The regulator kept that document private when announcing a $410 million accord with JPMorgan last month.
A U.S. housing regulator is seeking at least $6 billion from JPMorgan Chase & Co. to settle civil claims the bank sold bad mortgage bonds to government-backed finance companies Fannie Mae and Freddie Mac, Bloomberg News reported yesterday. The lawsuit is scheduled to go to trial in June, according to a filing in federal court in Manhattan. The FHFA sued JPMorgan and 17 other banks over faulty mortgage bonds two years ago in an effort to recoup some of the losses taxpayers were forced to cover when the government took over the failing mortgage finance companies in 2008. Fannie Mae and Freddie Mac, which are regulated by FHFA, have taken $187.5 billion in federal aid since then.
Two federal regulators are preparing a series of enforcement actions and fines against JPMorgan Chase stemming from its dealings with consumers during the recession in the latest legal woes facing the nation’s biggest bank, the New York Times DealBook blog reported yesterday. The regulators, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, plan to announce the actions as soon as next month. Under the terms of the civil orders, the bank will have to acknowledge internal flaws and dole out at least $80 million in fines. The most costly cases for JPMorgan center on concerns that the bank duped its credit card customers into buying products pitched as a way to shield them from identity theft. In separate actions reflecting their varied jurisdictions, the consumer bureau will levy a roughly $20 million fine, while the comptroller’s office is expected to extract about $60 million. In another set of actions, the regulators are targeting the bank for the way it collected overdue bills from consumers, the people said. It is unclear whether those cases will yield any fines.
The six biggest U.S. banks, led by JPMorgan Chase & Co. and Bank of America Corp., have piled up $103 billion in legal costs since the financial crisis, more than all dividends paid to shareholders in the past five years, Bloomberg News reported today. That’s the amount allotted to lawyers and litigation, as well as for settling claims about shoddy mortgages and foreclosures, according to data compiled by Bloomberg. About 40 percent of the legal and litigation outlays arose since January 2012, and banks are warning the tally may surge as regulators, prosecutors and investors press new claims. JPMorgan and Bank of America bore about 75 percent of the total costs, according to the figures compiled from company reports. JPMorgan devoted $21.3 billion to legal fees and litigation since the start of 2008, more than any other lender, and added $8.1 billion to reserves for mortgage buybacks, filings show.
JPMorgan Chase & Co.'s penalties for the "London whale" trading fiasco are expected to total $500 million to $600 million as part of a far-reaching settlement that could wrap up as soon as next month, the Wall Street Journal reported today. The Justice Department, Securities and Exchange Commission, Commodity Futures Trading Commission, Office of the Comptroller of the Currency and the U.K's Financial Conduct Authority are conducting investigations into J.P. Morgan's handling of the episode. Not all agencies have agreed to their final numbers and the total could still be above or below the range. U.S. and U.K. officials for months have been considering the possibility of such a "global" settlement, which would resolve all the probes at once. (Subscription required.) http://online.wsj.com/article/SB100014241278873234071045790385028943022…
In related news, Javier Martin-Artajo, a former JPMorgan Chase employee accused of hiding trading losses that ultimately reached more than $6 billion, had his first day in court yesterday as he surrendered to Spanish authorities and kicked off what could be a lengthy extradition process, the New York Times DealBook blog reported yesterday. Martin-Artajo, a Spaniard who worked in the bank’s London office, was released soon after his surrender and arrest. He agreed to remain at the disposal of the Spanish judiciary, but it was unclear whether his passport was confiscated to prevent him from leaving the country. The criminal charges stem from a risky bet at JPMorgan’s chief investment office in London, where Martin-Artajo worked. http://dealbook.nytimes.com/2013/08/27/spanish-authorities-arrest-forme…
Bank of America Corp.’s lawsuit against the Federal Deposit Insurance Corp. over $1.7 billion in investor losses was dismissed by a federal judge, Bloomberg News reported yesterday. U.S. District Judge Barbara Rothstein threw out the case, saying that there weren’t enough assets to make any payments on general creditor claims. Bank of America’s claims, based on its role as trustee for Ocala Funding LLC, “have no value and must therefore be dismissed because no case or controversy exists,” Rothstein wrote in her decision yesterday. The case stems from a mortgage-fraud scheme at failed lender Taylor, Bean & Whitaker Mortgage Corp. From 2002 through August 2009, Lee Farkas, while he was chairman of Taylor Bean, sold more than $1.5 billion in fake mortgage loans to Colonial Bank with the collusion of its employees and diverted more than $1.5 billion from Ocala Funding, a financing vehicle Taylor Bean controlled. Farkas is serving a 30-year sentence after being convicted in April 2011 of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.
Standard & Poor’s probably will demand greater protections for investors when mortgage bonds are backed by loans to homeowners in jurisdictions that use eminent domain to seize debt to help borrowers, Bloomberg News reported yesterday. The use of eminent domain, such as is being contemplated by Richmond, Calif., would create an “additional risk of default,” as well as require different assumptions on the size of per-loan losses, S&P analysts James Taylor and Sharif Mahdavian said yesterday. The ratings firm would likely require more credit support, or protection such as some classes of deals taking losses before others, they wrote. Richmond is furthest along in considering using its eminent domain powers in such a way, which is being advocated by Mortgage Resolution Partners LLC and studied by about a dozen municipalities, according to data compiled by Bloomberg. S&P’s statement on its potential reaction if the effort progresses follows the ratings company’s response in 2003 to a predatory-lending law in Georgia with a refusal to grade bonds with home loans in the state.
The U.S. Federal Reserve asked that its rules on debit card transaction fees and processing be left in place while it appeals a decision that they are illegal, Bloomberg News reported yesterday. Maintaining that the regulations would provide stability in the debit card marketplace while disagreements on rules are settled, according to a court filing by the Fed in Washington, D.C. “If the regulations here were vacated by the District Court, there would be no legally binding standards for determining the permissible amount of interchange fees an issuer could receive with respect to a debit card transaction and no limitations on exclusive routing restrictions imposed by issuers and payment networks on debit card transactions, lawyers for the Fed wrote. The Fed will ask the appeals court for an expedited appeal, and on that basis, the central bank has the support of retailer groups who sued to challenge the regulations, according to its filing yesterday.
A New York state judge has ordered JPMorgan Chase & Co. to pay the billionaire Leonard Blavatnik $42.5 million plus interest, finding the bank liable for breach of contract after it was accused of mismanaging an investment account by betting on risky mortgage securities, Reuters reported yesterday. In a decision made public on yesterday, New York State Supreme Court Justice Melvin Schweitzer also said the largest U.S. bank was not liable on a negligence claim. Blavatnik had sought to recover more than $100 million that he said the bank lost on his original investment of roughly $1 billion.
