Where the SEC Puts the JP Morgan-Bear Stearns Settlement Matters

JP Morgan disclosed they reached an agreement with the SEC today for the double-dipping scheme run by Bear Stearns mortgage traders. This was where the traders under Tom Marano kept billions of dollars that were supposed to go back to RMBS investors when resi-loans defaulted in the first 90 days. The SEC hasn’t officially accepted the deal yet and a court still has to approve it so we have ZERO info on how much Jamie Dimon’s bank has to pay and if there are any punitive damages.

Unfortunately with SEC settlements the bank doesn’t admit any wrong doing. So what’s important to watch here is where the SEC slots the funds. Will they place millions in their general fund or will the money go into something called a ‘fair fund’. Sarbanes-Oxley actually gave the SEC a mechanism to create a fund for aggrieved investors so they can get some restitution dollars back. In all fairness any money the SEC gets out of JP Morgan should be put back into the RMBS trust and paid out according to the waterfall for each security. It would be a little complicated to do but hey it’s the SEC and I’m sure they can hire a forensic accountant to sort it out. If that happens then the state and federal judges ruling on $140 billion of rmbs civil suits against the bank (it went up $20 billion in Q3 according to their 10-Q filing) could see it as an admission of guilt, which would really bolster the civil suits with fraud claims who are subject to triple damages.

Sadley we are not expecting JP Morgan to be fined by the SEC anywhere near the billions they should be. The bank’s 10-Q shows they only added $700 million to their litigation reserves in Q3 for a total of up to $6bn over what they have already expensed.

A few naive reporters have written stories today that the SEC settlement shows JP Morgan is getting out of the woods from its rmbs fraud and putback suits but it’s actually the opposite. The SEC’s suit doesn’t affect the billions the NY AG is trying to suck out of JP Morgan for the same crimes—he did sue for around $22 billion. But JPM’s real worry comes in the hefty payout they will have to pay when they settle with the monolines, institutional investors, and even the FHFA who sued for Fannie Mae and Freddie Mac. JP Morgan has been fighting some of these rmbs fraud cases for five years now and a few are set for trial next year.

Today’s news is really about Jamie Dimon finally admitting Bear Stearns traders did something really wrong to its own investors and JP Morgan is going to have to pay a lot for it.

Update 11-13-12: The WSJ is still running PR for Jamie Dimon and yesterday tried to tell readers that Bear Stearns executives won’t and shouldn’t be charged criminally. This is beyond embarrassing for the WSJ reporters as viewers of RT’s Keiser Report know I’ve been explaining for two years how much evidence the DOJ would have if they wanted to charge Tom Marano and his team. Nick Verbitsky, documentary film maker of the Bear Stearns movie ‘Confidence Game‘ even commented on the absurd reporting by the WSJ. It’s clear we are not going to get any decent reporting or analysis out of the WSJ but Reuters legal columnist, Alison Frankel has a great analysis on why JP Morgan is likely to pay billions in RMBS putbacks because of Bear’s fraud. Read it and you’ll see why setting aside even $6 billion in litigation reserves isn’t enough for $JPM.