JP Morgan Chase 2010 Annual Report Download - page 286

Notes to consolidated financial statements
286 JPMorgan Chase & Co./2010 Annual Report
ments between the parties by failing to repurchase allegedly defec-
tive mortgage loans. Each action seeks unspecified damages and
an order compelling EMC to repurchase those loans.
In the actions against the Firm solely as an underwriter of other
issuers’ MBS offerings, the Firm has contractual rights to indemnifi-
cation from the issuers, but those indemnity rights may prove
effectively unenforceable where the issuers are now defunct, such
as affiliates of IndyMac Bancorp (“IndyMac Trusts”) and Thornburg
Mortgage (“Thornburg”). With respect to the IndyMac Trusts,
JPMorgan Securities, along with numerous other underwriters and
individuals, is named as a defendant, both in its own capacity and
as successor to Bear Stearns in a purported class action pending in
the United States District Court for the Southern District of New
York brought on behalf of purchasers of securities in various Indy-
Mac Trust MBS offerings. The Court in that action has dismissed
claims as to certain such securitizations, including all offerings in
which no named plaintiff purchased securities, and allowed claims
as to other offerings to proceed. Plaintiffs’ motion to certify a class
of investors in certain offerings is pending, and discovery is ongo-
ing. In addition, JPMorgan Securities and JPMorgan Chase are
named as defendants in an individual action filed by the Federal
Home Loan Bank of Pittsburgh in connection with a single offering
by an affiliate of IndyMac Bancorp. Discovery in that action is
ongoing. Separately, JPMorgan Securities, as successor to Bear,
Stearns & Co. Inc., along with other underwriters and certain
individuals, are defendants in an action pending in state court in
California brought by MBIA Insurance Corp. (“MBIA”). The action
relates to certain securities issued by IndyMac trusts in offerings in
which Bear Stearns was an underwriter, and as to which MBIA
provided guaranty insurance policies. MBIA purports to be subro-
gated to the rights of the MBS holders, and seeks recovery of sums
it has paid and will pay pursuant to those policies. Discovery is
ongoing. With respect to Thornburg, a Bear Stearns subsidiary is a
named defendant in a purported class action pending in the United
States District Court for the District of New Mexico along with a
number of other financial institutions that served as depositors
and/or underwriters for three Thornburg MBS offerings.
In addition to the above-described litigation, the Firm has also
received, and responded to, a number of subpoenas and informal
requests for information from federal authorities concerning mort-
gage-related matters, including inquiries concerning a number of
transactions involving the Firm’s underwriting and issuance of MBS
and its participation in offerings of certain collateralized debt
obligations.
In addition to the above mortgage-related matters, the Firm is now a
defendant in an action commenced by Deutsche Bank, described in
more detail below with respect to the Washington Mutual Litigations.
Mortgage Foreclosure Investigations and Litigation. Multiple state
and federal officials have announced investigations into the proce-
dures followed by mortgage servicing companies and banks, includ-
ing JPMorgan Chase & Co. and its affiliates, relating to foreclosure
and loss mitigation processes. The Firm is cooperating with these
investigations, and these investigations could result in material fines,
penalties, equitable remedies (including requiring default servicing or
other process changes), or other enforcement actions, as well as
significant legal costs in responding to governmental investigations
and additional litigation. Three purported class action lawsuits have
also been filed against the Firm relating to its mortgage foreclosure
procedures.
These investigations and actions follow the Firm’s decision in late
September 2010 to commence a temporary suspension of obtaining
mortgage foreclosure judgments in the states and territories that
require a judicial foreclosure process. Subsequently, the Firm ex-
tended this temporary suspension to foreclosure sales in those
states and territories that require a judicial foreclosure process, and
to foreclosures and foreclosure sales in the majority of remaining
states where a judicial process is not required, but where affidavits
signed by Firm personnel may have been used as part of the fore-
closure process. In mid-October, the Firm also temporarily sus-
pended evictions in the states and territories in which it had
suspended foreclosures and foreclosure sales, as well as in certain
additional states in which an affidavit signed by Firm personnel may
have been used in connection with eviction proceedings.
The Firm’s temporary suspension arose out of certain questions
about affidavits of indebtedness prepared by local foreclosure
counsel, signed by Firm employees and filed or used in mortgage
foreclosure proceedings in certain states. Although the Firm be-
lieves, based on its work to date, that the statements in those
affidavits of indebtedness regarding the fact of default and amount
of indebtedness were materially accurate, in certain instances, the
underlying review and verification of this information was per-
formed by Firm personnel other than the affiants, or the affidavits
may not have been properly notarized.
As of January 2011, the Firm has resumed initiation of new foreclo-
sure proceedings in nearly all states in which it had previously
suspended such proceedings, utilizing revised procedures in con-
nection with the execution of affidavits and other documents used
by Firm employees in the foreclosure process. The Firm is also in the
process of reviewing pending foreclosure matters in these states to
determine whether remediation of specific documentation is neces-
sary, and intends to resume pending foreclosures as the review,
and if necessary, remediation, of each pending matter is completed.
The Firm intends to begin taking these same actions in all remain-
ing states in the near future.
Municipal Derivatives Investigations and Litigation. The Department
of Justice (in conjunction with the Internal Revenue Service), the
Securities and Exchange Commission (“SEC”), a group of state
attorneys general and the Office of the Comptroller of the Currency
(“OCC”) have been investigating JPMorgan Chase and Bear
Stearns for possible antitrust, securities and tax-related violations in
connection with the bidding or sale of guaranteed investment
contracts and derivatives to municipal issuers. The Philadelphia
Office of the SEC provided notice to JPMorgan Securities that it
intends to recommend that the SEC bring civil charges in connec-
tion with its investigation. JPMorgan Securities has responded to
that notice, as well as to a separate notice that that Philadelphia