Could JP Morgan be sued by Stockholders for Creative Mortgage Putback Accounting?

I was on Max Keiser’s show yesterday talking about JP Morgan’s triple-digit billion mortgage repurchase litigation problem that they refuse to accurately reflect on their financial statements. A problem that is now compounded by the fact their regulator, the SEC, has told them they want to sue Jamie Dimon’s bank for securities violations or bring an enforcement action against them, which could validate some of the RMBS fraud claims in the eyes of New York judges overseeing the $120 billion in litigation. What I didn’t realize was how much of a blatant accounting cover up this mortgage repurchase issue is –one that some analysts think could led to a massive accounting fraud suit against JP Morgan and their auditor PricewatershouseCoopers.

In a May 18th newsletter by Robert Christensen a senior advisor to Chicago-based financial forensics Natoma Partners he writes, “What I have found is that the reserves required for repurchase of loans that did not meet the reps & warranties have been consistently and massively underestimated.”

Christensen, a former head of audit for financial service companies at Authur Andersen, boldly points out, “These provisions have actually increased from the previous two quarters (for the major banks $C, $WFC, $BAC, $JPM he covers) for all the banks except for JP Morgan Chase.”

I had the chance to interview Christenson yesterday who helped me understand it’s not just the fact that the bank’s mortgage putback reserves are low (and thus they don’t have to set aside more capital) it’s the fact that accounting procedure called for the banks to actually set up putback reserves during the mortgage go-go years of 2005-2008. NOT after their customers got lawyers involved demanding they honor the security warranties and buy back these totally toxic garbage never-paid-their-mortgage loans. So while we are seeing banks lobe on billions of putback reserves this is really a game of catch up that the auditors watchdog (PCAOB) and the SEC could currently be investigating the banks and their auditors for not accounting for the problem right in the first place. You can see a hint of this in a correspondence letter filed by the SEC between them, BofA and their auditor asking questions about mortgage repurchase accounting and if their methods are in error. The banks response to the SEC is unfortunately redacted so we can’t see it but I have to question why they’d redact it if it was a bad news answer. If the SEC is asking BofA these questions I’d be interested in seeing if JP Morgan got similar questions.

JP Morgan’s auditor PwC does this whole other ‘creative accounting’ move to make it difficult for the SEC or their investors see what kind of real private label mortgage repurchase liability they think they have. They simply moved the whole category into litigation reserves. A lovely little accounting bucket Francine McKenna of told us last week doesn’t have to be broken out. Now what’s interesting is Christensen told me of the four banks he covers JP Morgan is the only one who does this! Yep somehow PwC, who also audits Bank of America, has allowed JPM to sweep their massive private label rmbs putback risk under the table so main street investors can’t even see how many billions the bank thinks it will have to pay rmbs investors they allegedly stole billions from. It’s interesting to note that BofA has it’s own set of billion dollar RMBS fraud and putback lawsuits but PwC doesn’t follow the same kind of ‘creative accounting’ with their repurchase liability risk?

The only putback detail we get to see from JP Morgan, starting on page 38 of their Q1 10-Q, is all the GSE putbacks they had to pay back. They do mention the average loss severity on the resi mortgage loans in the securities is a whopping 58% but then that’s a self-determined number. And given the way their $2bn erroneous derivative trading loss keeps growing (reports now say it could be a $6bn trading loss) I don’t see how we can trust a lot of JP Morgan’s estimates these days.

McKenna who’s been warning about the banks underestimated putback reserves since 2007 told me, “We are seeing PCAOB citing auditors for not pushing back on banks on mortgage loan loss reserves and litigation contingencies. But their inspection reports are not timely and do not name the bank they are finding auditing faults with. So it’s worthless to outsiders or general investors.”

Now for JP Morgan to stop using this creative accounting to mask their mega billion rmbs putback problem the PCOB and the SEC would have to lay down an iron hand and publish some kind of public infraction or fine against PwC and JP Morgan. And if that happened well…I’d expect a bucket of class action stockholder lawsuits to pop up against JP Morgan and PwC. You know kind of like those Enron or the Telecom suits that labeled the auditors accomplices in financial crimes.


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  1. Saw you on RT yesterday. Very informative discussion. I was impressed with your presentation. Your follow-up investigation points to fraud by both JPM & PCW.
    I am a member of the Occupy London working group on Monetary & Banking refom. We have just set up a website(above-still work in progress) for the group.
    We are exploring radical models for a new banking/monetary and social system eg Government taking control for “printing of Money”;

  2. sorry, I accidentally pressed the wrong key before completing my sentence.

    ….land tax instead of income tax; national development bank; ect

  3. Hey Teri, great job with Max the other day. I never miss a show and have discovered lots of resources to help figure out what is really happening. Your insight into JP Morgan is great, thanks for publicizing it. I’m excited to read your other posts and see what additional insights you provide. Thanks again!

  4. Resolute says

    Teri, A simple thank you for doing such important investigative work.
    The MSM, in part bought or subsidized by the very corporate entities they should be covering, cannot provide this essential, objective distribution of information you so competently deliver. Again, thank you for the integrity of your journalism.

  5. I also saw you on Max Keiser’s show and found it quite informative. This post expounds on the points you made there. Why do I get the feeling that in today’s climate, even if JP Morgan’s auditors, et al. were indicted, they would be long gone and swept away with a very modest fine. Keep up great work, Teri!

  6. chitown2020 says

    These financiers have committed massive fraud and they created massive, unsustainable debt with these derivatives. Now it is all catching up with them and they are running out of ways to cover up this ongoing robbery and scam. There is $700 trillion dollars in mortgage derivatives fraud and an estimated $1.2 quadrillion in derivatives fraud lurking in the shadows. They oversold interests in anything they could get their greedy hands on. What the Politicians, the banksters and the media are covering up is the fact that the FED are the deadbeats in all of this. Everything is the opposite of what we were told to believe. The FED owes the Treasury gagillions of dollars and they are pocketing money they are not owed and robbing US and NOT PAYING THEIR BILLS. These crooks sold lousy quality credit to the American people and sold interests in these lousy investments to politicians, the lawyers, the judges and millions of people around the globe are invested in this derivatives fraud. While these FED crooks take all of our wealth and run, they are leaving all of us to fight for the crumbs. The FED has been allowed to create a mess that defies human comprehension with these derivatives weapons of financial mass destruction. There are illegal and unconstitutional conflicts of interest all over the place caused by the FED and this was all allowed by the politicians. They ALL need to go to prison.

  7. chitown2020 says

    I would like to add a prime example of the racketeering that the FED banks are engaging in. I am fighting 2 fraudclosures pro se because there are no attorneys fighting to uphold the rule of law in respect to property rights in my state of Illinois..namely Cook County. I refuse to negotiate with a bank that committed massive fraud with my signature and defrauded the U.S. TREASURY DEPT. with my signature. Anyways..long story short, just the other day I received a re-instatement from the loan servicer that if I wire $11,000.00 to Chase bank…who NEVER owned my loan…I can forget the whole fraudclosure mess of the last 2 years ever happened…! All I can say to that is….show me the ACCOUNTING that says you lent me any money otherwise, you are an IMPOSTER to the mortgage and you need to go to prison.

  8. Natasha Thoday says

    Thank you for your great work Teri. At 18:15 in Max Keiser’s show you say ‘… less money left to lend to main street…’ But banks don’t work like that; instead bank’s simply create new money (credit creation, or a new deposit is created… yes they use confusing language on purpose) when they make a new contract with you. Its your signature, that underwrites the new money by promising to pay money back tomorrow + interest (which is is a key move in the money supply Ponzi scheme). They don’t have cash in the vault to lend to main street! At least according to Bill Still, the Zarlenga / Kucinich bill in the US, and in the UK Prof Werner, the New Economics Foundation, and the draft legislation, and many others, which all advocate that money creation is far too important to be left to private central and other banksters or politicians.

  9. Elizabeth Head says

    I’m sure you’re probably aware of this, but just in case:
    This comes up as an ad at the top of your Google search. As you can see, there is no website as such, just links to bash you! They’re obviously very afraid of you and thus I like you even more.
    Many thanks for sterling work

    • Mr. Cheddar says

      I saw this too. Moreover, when you google on ‘Teri Buhl,’ words such as ‘arrested,’ ‘fired,’ and ‘trial’ will then pop up in autofill. So it seemed right for me to then do three other searches: ‘Teri Buhl hero,’ Teri Buhl corageous,’ and ‘Teri Buhl intrepid.’ Google remembers this kind of thing. (:

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