NU Online News Service, April 3, 1:32 p.m. EDT
Bond-insurer Ambac has filed a second suit against JP Morgan Chase Bank claiming the bank’s mortgage unit perpetrated a fraud by failing to follow proper underwriting guidelines and presenting poor-quality risks to the carrier.
On Friday, Ambac filed suit in the Supreme Court of the State of New York in Manhattan alleging that inquiry and investigation “revealed Bear Stearns’ remarkable misconduct” on the part of the investment banking house.
J.P. Morgan Chase acquired Bear Stearns in 2008, and is subsequently being held responsible for the group’s actions.
Ambac alleges that it is suing over a second set of securitization transactions and loans related to residential mortgage-backed securities that are different from those it filed in its first suit in 2011.
However, Ambac says the story remains the same—that the “‘Bear don’t care’ mentality” of the company “perpetuated a massive fraud that deceived investors and financial guarantors, such as Ambac, into believing that the mortgage loans backing its securitizations were originated pursuant to established underwriting guidelines and were therefore of good quality.”
The New York-based guaranty insurer goes on to say that Bear Stearns “flagrantly” ignored its contractual obligations to the carrier and others by delivering “defective” securities.
Ambac says it has “overwhelming proof of Bear Stearns’ misconduct” that includes witnesses revealing the banker’s actions.
The insurer lays out the case that Bear Stearns’ mortgage business, EMC Mortgage LLC, now doing business as J.P. Morgan Securities LLC, “disregarded loan quality for loan quantity” and went out of its way to hide the defects in the loans from Ambac so the company would insure them. The carrier further states that Bear Stearns knew its representations concerning the re-underwriting due diligence it commissioned were false and misleading, and failed to implement proper safeguards to assure loan quality.
In its 125-page brief, Ambac requests legal and punitive damages for claims it has paid or due to pay in the future.
A request for comment from Ambac was not immediately returned. J.P. Morgan has also issued no comment.
Ambac, which has been in bankruptcy after suffering severe losses from the economic meltdown in 2008-2009, recently received permission from the courts to reorganize.
The company lost more than $960 million in the fourth quarter of the year.