JPMorgan, Ratings Companies Lose Bid to End Suit Over Mortgage-Bond Sales

JPMorgan Chase & Co. and credit- ratings companies lost a bid to throw out lawsuits over the sale of $2.8 billion of mortgage-backed securities to the Federal Home Loan Bank of Pittsburgh.

Pennsylvania state Judge R. Stanton Wettick Jr. in Pittsburgh said some claims could proceed against JPMorgan and ratings companies Moody’s Corp., Fitch Group Inc. and McGraw- Hill Cos., which owns Standard & Poor’s Financial Services LLC, according to a Nov. 29 court order. The judge dismissed other claims against the companies.

“We are very pleased with the judge’s ruling and we look forward to stating our viewpoints as the case goes forward in court,” Neil Cotiaux, a spokesman for the Federal Home Loan Bank of Pittsburgh, said today in a phone interview.

The decision affects four lawsuits filed by Federal Home Loan Bank over the purchase of mortgage-backed securities, according to the judge’s ruling. The bank claims it wouldn’t have bought the bonds if JPMorgan, which sold them, and the ratings companies “had provided complete and accurate information regarding the risks of nonpayment,” the judge said in his description of the complaint.

The defendants in the cases are the three ratings companies, JPMorgan and Bank of America Corp.’s Countrywide Financial unit, according to the decision.

Dana Yealy, general counsel for the Federal Home Loan Bank of Pittsburgh, said in a phone interview that the bank spent $2.8 billion for the mortgage-backed securities involved in the four cases. He declined to comment about their value now.

One of the lawsuits involves $1.7 billion of mortgage- backed securities bought by the Federal Home Loan Bank from May 2006 to December 2007, the judge wrote.

‘Predictions’ Protected

“We’re pleased that the court has dismissed all but one of the claims against S&P,” Ed Sweeney, a spokesman for the company, said today in an e-mailed statement. “In doing so, the court has reaffirmed the protection afforded to ratings because they are predictions about future creditworthiness.”

The remaining claim against S&P is “without any factual or legal merit,” Sweeney said.

Wettick said the Federal Home Loan Bank’s fraudulent misrepresentation claims against the ratings companies could proceed. The judge dismissed claims against them for negligent misrepresentation and violations of the Securities Act of 1933, according to the decision.

Fraudulent and negligent misrepresentation claims were dismissed against a group of JPMorgan units except J.P. Morgan Securities Inc. Claims based on the Securities Act of 1933 were dismissed against some JPMorgan units. They can proceed against the parent company and J.P. Morgan Securities.

Lawyers for the other ratings companies and JPMorgan didn’t immediately return calls seeking comment. Bill Halldin, a Bank of America spokesman, declined to comment.

The case is Federal Home Loan Bank of Pittsburgh v. J.P. Morgan Securities LLC, GD09-016892, Court of Common Pleas of Allegheny County, Pennsylvania (Pittsburgh).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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