Judge OKs JPMorgan Mortgage-Backed Securities Class Action Settlement

Last week, a New York federal judge preliminarily approved a class action settlement that will resolve allegations that affiliates of JPMorgan Chase & Co. misled investors into purchasing $36.8 billion worth of mortgage-backed securities (MBS) issued in 2006 and 2007. Under the terms of the class action settlement, JPMorgan will pay $280 million to investors who purchased certain MBS offerings.

U.S. District Judge Pamela K. Chen approved the class action settlement, finding that the terms are “fair, just, reasonable and adequate to the Class.” She also preliminarily certified for settlement purposes a class of more than 2,850 investors who purchased certain certificates issued by J.P. Morgan Acceptance Corp. I between May 2006 and September 2007.

According to the JPMorgan MBS class action lawsuit, which was initially filed in 2008, JPMorgan ignored its own standards and guidelines when evaluating and buying loans included in 33 offerings of mortgage-backed securities. The Public Employees’ Retirement System of Mississippi (MissPERS), which was appointed the lead plaintiff for the class action lawsuit in 2009, eventually narrowed its claims to include claims stemming from just 26 JPMorgan MBS offerings.

Class Members of the JPMorgan Chase mortgage-backed securities settlement include individuals who purchased or acquired certificates pursuant to or traceable to the offerings. Under the terms of the JPMorgan class action settlement, “certificate” means “each publicly-offered certificate issued in one of the Offerings pursuant or traceable to Defendants registration statements dated July 29, 2005 … and December 7, 2005, and to the prospectus and prospectus supplements that were used to offer or sell each Certificate.”

If all eligible Class Members opt in to the class action settlement, each one is expected to receive $11.95 per $1,000 in original face value offered.

JPMorgan has not admitted any wrongdoing, but agreed to settle the class action lawsuit to avoid the expense and uncertainty of ongoing litigation. A hearing for the final approval of the JPMorgan class action settlement has been scheduled for July 24.

The JPMorgan settlement is the third-largest class action settlement among U.S. banks that packaged and sold the mortgage-backed securities that fueled the 2008 financial crisis. Last year, a $500 million class action settlement was reached between Bank of America Corp. and investors who claim they were misled by Countrywide, the bank’s mortgage unit. A $315 million class action settlement involving securities issued by the Bank of America’s Merrill Lynch unit was approved in 2012.

The JPMorgan class action settlement follows a similar settlement agreement, under which Royal Bank of Scotland Group Plc agreed to pay $275 million to resolve similar allegations.

The plaintiffs are represented by David R. Stickney and Niki L. Mendoza of Bernstein Litowitz Berger & Grossmann LLP and Marian P. Rosner and Matthew Insley-Pruitt of Wolf Popper LLP.

The JPMorgan Chase Mortgage-Backed Securities Class Action Lawsuit is Plumbers’ & Pipefitters’ Local #562 Supplemental Plan & Trust, et al. v. J.P. Morgan Acceptance Corp. I, et al., Case No. 2:09-cv-01713, in the U.S. District Court for the Eastern District of New York.