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3rd October 2012:

1st Oct 2012 saw a fresh salvo of litigation against US securitization transactions: ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, filed a fraud allegation against J.P. Morgan Securities LLC, formerly Bear, Stearns & Co. The complaint has been filed in his capacity as co-chair of the RMBS Working Group, a collaborative effort of the SEC and the Department of Justice to "blow the whistle" on frauds by insiders pertaining to RMBS deals. The Financial Fraud Enforcement Task Force is a part of SEC's whistleblower, and also promises monetary rewards to those who report frauds.


The complaint alleges lack of controls and diligence on the part of alt-A and subprime securitizations. Possibly based on leaked information by whistleblowers, the complaint alleges: "At least four of these securitizations contained 30% or more loans originated by or purchased from AHM, including SACO I Trust ("SACO") 2006-8, Structured Asset Mortgage Investments II Trust ("SAMI") 2007-AR4, SAMI 2007-AR6, and SAMI 2007-AR7. Other internal communications reflect Defendants' awareness of the bad quality of loans that were being included in other securitizations. In connection with the Bear Stearns Second Lien Trust 2007-1 ("BSSLT 2007-1") securitization, for example, one Bear Stearns executive asked whether the securitization "was a going out of business sale" and expressed a desire to "close this dog". In another internal email, the SACO 2006-8 securitization was referred to as a "SACK OF SHIT" and a "shit breather". 


Notably, the Federal Housing Finance Authority had sued several mortgage originators. In fact, structured finance litigation abounds with attorneys making the most out of it. In fact, the sheer enthusiasm of the legal fraternity is witnessed in a complete website dedicated to structured finance litigation. 
 

 [By: Vinod Kothari]