The ink hasn't even had a chance to dry on JPMorgan Chase's whopping $920 million fine in the London Whale affair, and now it may be in more trouble. Tomorrow morning, federal prosecutors in Sacramento will sue JPMorgan over the sale of mortgage bonds during the 2007-08 financial crisis.
The U.S. Justice Department is preparing to sue JPMorgan Chase & Co over mortgage bonds it sold in the run-up to the financial crisis, a sign the bank's legal troubles are not yet over.
A lawsuit, first reported by Reuters, could come as early as Tuesday, people familiar with the matter said on Monday.
JPMorgan spokesman Brian Marchiony and Justice Department spokeswoman Adora Andy Jenkins declined to comment.
The bank disclosed in August that federal prosecutors in California were conducting criminal and civil investigations into the bank's mortgage securities.
In those investigations, government lawyers have concluded that JPMorgan committed civil violations of securities laws in offering mortgage bonds from 2005 to 2007 that were backed by subprime and other risky residential mortgages.
Predictably, neither the Justice Department nor JPMorgan Chase are commenting. However, this is yet more bad news for the nation's biggest bank. It already faced the prospect of shareholder suits because it admitted breaking securities law in the London Whale mess.
Apparently JPMorgan only has itself to blame in this case. The suit will only cover mortgage bonds sold by JPMorgan itself, and not from companies it bought during the worst of the crisis like WaMu or Bear Stearns.
Although the only certainty is a civil suit, this could potentially be more damaging to JPMorgan in the long run than a criminal trial. A civil trial means the major players in this case will almost certainly have to testify under oath--exposing them to perjury if it turns out they're lying. Additionally, civil law allows greater latitude for subpoenas. Though of course, most of us would love to see any higher-ups involved in wrongdoing end up in orange jumpsuits.