JPMorgan mortgage takes hit for $150M in scandal

JPMorgan will pay more than 150 million to settle investor’s charges that they were misled. After the sale of a collateralized debt obligation 3 years ago, it was discovered that JPMorgan Securities marketed the investment to investors without disclosing that they were betting it would decline in value, according to the SEC. "JPMorgan marketed highly-complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests," said Robert Khuzami, the SEC's top enforcement officer.

JPMorgan mortgage Squared CDO 2007-1" The $1.1 billion mortgage CDO

JPMorgan mortgage investment allowed individual investors to wager on the housing market. According to the SEC, JPMorgan allowed Magnetar Capital, a Chicago based hedge fund, to help select the underlying assets in the Squared CDO. By the time the deal closed, Magnetar had a $600 million "short" position in the CDO betting it would decline, compared with a $8.9 million long position, according to the SEC. The sale occurred just as the housing market began to collapse and more homeowners started to default.

JPMorgan Mortgage Investors will be paid:

The roughly $153 million settlement will make the investors whole, according to the SEC. But the agency did not say how much money would go to each investor. JPMorgan -- the most profitable U.S. bank -- made a $5.6 billion profit in the first quarter of this year. 0:00 / 5:14 SEC top cop: JPMorgan didn't get off easy As part of the settlement, JPMorgan agreed to improve how it reviews and approves mortgage-backed securities, the SEC said. The agreement is very similar to last years Goldman Sachs scandal, which paid a whopping $550 million to settle charges it misled investors in the sale of a CDO that was being shorted by Paulson & Co. There was no admission or denial from JPMorgan since the agreement must be approved by the courts in due process.

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