JP Morgan, the SEC and Apples and Oranges
You could almost hear the sound of money getting counted throughout the world of credit unions as word spread Tuesday that JP Morgan Securities had decided to settle – for $153.6 million – a suit filed against it by the Securities and Exchange Commission over bad bundles of mortgage-backed securities.
The SEC charge tracked the claims made by the NCUA in its suit against JP Morgan, namely that it had fraudulently packaged MBS investments.
Just one problem, according to attorneys who agreed to offer comment on the basis of maintaining anonymity. The NCUA is not the SEC.
“To JP Morgan NCUA is just another disgruntled investor,” said one lawyer. He elaborated that JP Morgan needs working relations with the SEC to operate day to day. It has more tangential dealings with NCUA. Thus any settlement with NCUA would be a markedly lower priority. “Why would they need a quick settlement with the NCUA? They do not.”
“This is an apples and oranges argument,” agreed another attorney. “The NCUA is not the SEC and everybody knows it.”
Crucial, too, is that the SEC suit against JP Morgan Securities – in an echo of an action against Goldman Sachs settled last year for $550 million – involved securities bundles created by hedge funds that had a stake in the failure of included mortgages.
In neither case was this hedge fund role disclosed to investors. This, too, differentiates the SEC action from NCUA in that the investments – although both involve MBS – are substantially different.
Bottom line: Don’t count on a fast-track settlement of the NCUA suits, at least not on the basis of this SEC settlement.