JPMorgan Chase & Co.’s Bear Stearns unit asked a federal judge to throw out a regulator’s lawsuit that claims it used misleading documents to sell $3.6 billion in mortgage-backed securities to credit unions that later failed.
Bear Stearns, in papers filed yesterday with the U.S. court in Kansas City, Kansas, contends that the National Credit Union Administration board is unfairly blaming the bank because the credit unions took widely known risks that eventually “backfired.”
“Despite warnings from the offering documents, the news media and even the board itself, the credit unions made the informed decision to plunge the majority of their assets into residential mortgage-backed securities at the height of the housing bubble,” Bear Stearns said in court papers.
“Ignoring its own assessment of what actually happened, the board now seeks to blame defendants for the credit union’s losses,” the company argued.
NCUA, an Alexandria, Virginia-based independent federal agency, is responsible for recovering losses to minimize the costs to its industry-paid stabilization fund.
John Fairbanks, an NCUA spokesman, declined to comment on the Bear Stearns filing, saying the agency doesn’t comment on pending litigation.
The agency sued the JPMorgan Chase unit in December, acting as liquidator of the U.S. Central Federal Credit Union and the Western Corporate Federal Credit Union, each of which were placed into conservatorship in 2009 and into involuntary liquidation a year later, as well as the Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union, which were placed in conservatorship, then liquidation, in 2010.
Bear Stearns’s offering documents said originators of the underlying mortgages had adhered to underwriting guidelines that had, in reality, been “systematically abandoned,” making the investments riskier than represented, NCUA said in its complaint.
JPMorgan Chase & Co. (JPM) acquired Bear Stearns in 2008. The regulator separately sued the New York-based bank as successor in interest to Washington Mutual Bank and has eight other cases pending against defendants including Goldman Sachs Group Inc., and investment banking units of Barclays Plc (BARC) and Royal Bank of Scotland Group Plc.
Barclays Capital Inc. in November asked the court to dismiss the claims it faced, claiming they were filed too late. RBS Securities Inc. is appealing an adverse ruling last year by a federal judge in Topeka, Kansas.
Bear Stearns, arguing a federal appeals court ruling in the RBS case could address issues in the suit it faces, asked U.S. District Judge J. Thomas Marten to consider suspending the case until the Denver-based court rules.
The case is National Credit Union Administration Board v. Bear Stearns & Co., 12-cv-2781, U.S. District Court, District of Kansas (Kansas City).
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