JPMorgan Chase & Co., the biggest U.S. bank, defeated most of a lawsuit brought by Dexia SA over about $1.6 billion in mortgage-backed securities it bought before the financial crisis.
U.S. District Judge Jed Rakoff in Manhattan narrowed the case to five securitization deals from 65 at issue in a complaint brought by Dexia, according to an order filed today. Rakoff said he would issue an opinion later explaining his reasoning.
Dexia, based in Brussels, sued JPMorgan in 2012 along with the Bear Stearns and Washington Mutual businesses JPMorgan acquired, accusing the lender of “egregious fraud” in the sale of mortgage bonds. Dexia claimed loans backing securities purchased between 2005 and 2007 were riskier than promised.
Dexia unit FSA Asset Management LLC said in court papers that JPMorgan received reports from independent mortgage-loan underwriters showing that 20 percent to 80 percent of the loans in samples used for testing didn’t meet the underwriting guidelines, including fraudulent home appraisals or missing documentation.
“Rather than disclose these known defects to FSAM, defendants bought and sold massive quantities of defective loans,” FSAM said. “Defendants secretly overrode the independent loan underwriters’ determinations, creating a final, sanitized version.”
Rakoff granted part of JPMorgan’s motion for a pre-trial ruling known as summary judgment. The judge dismissed claims brought by Dexia and said FSAM can pursue claims related to five securitizations.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately comment about the decision. A lawyer for Dexia couldn’t be reached for comment.
The case is Dexia SA v. Bear Stearns & Co., 12-cv-04761. U.S. District Court, Southern District of New York (Manhattan).