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The attorney general of New York state is suing JPMorgan Chase. This suit is over alleged systematic fraud in the selling of mortgage assets before the financial crisis. It involves securities that were packaged and sold by Bear Stearns, the troubled investment bank that JP Morgan Chase bought the remains of in 2008. To help explain what's going on here, we've brought in NPR's Jim Zarroli, who's in New York.
Jim, good morning.
JIM ZARROLI, BYLINE: Good morning.
INSKEEP: OK. So if the allegations are true, what happened here?
ZARROLI: Well, the suit says that in 2006 and 2007 Bear Stearns sold a lot of mortgage-backed assets to thousands of investors. They told the investors that these assets had been carefully evaluated and they promised them that they were good. The truth was a lot of the mortgages underlying the securities had been issued to people who would later default. And the suit says these securities were worth a lot of money, about $90 billion, and the losses were astounding.
Once it became clear that these securities were going to lose money, Bear Stearns didn't really make any effort to find out whether they were any good. When they found out the mortgages were bad, they didn't tell investors. They didn't try to do anything really to respond to the problems. That's what the suit says.
INSKEEP: Jim, what's new here really, because a lot of this sounds quite familiar?
ZARROLI: Yeah, it is quite familiar. And it will be familiar to anybody who's read anything at all about the years leading up to the financial crisis. One of the things that is new here, I think, is that this involves JPMorgan Chase, the country's biggest bank. Of course, it is involved mainly because it later bought Bear Stearns.
INSKEEP: Well, let's talk about that for a moment, Jim Zarroli. Did the folks at JPMorgan Chase, the nation's biggest bank, understand when they picked up the pieces of Bear Stearns that they were also picking up the liability for this massive lawsuit?
ZARROLI: Well, I think they understood that. I think what they didn't probably understand was the depth of the problems that Bear Stearns faced. I mean, you might remember that Bear Stearns was bought by Chase for, I think, about $2 a share. And it happened during one very tense, one very dramatic weekend way back really at the beginning of the financial crisis.
So the purchase happened very fast. And I think that kind of left JPMorgan Chase in a sort of funny position now. It isn't being directly cited here, but because it bought Bear Stearns it's legally liable for its conduct. And Chase issued a statement yesterday sort of touching on that, saying it was disappointed that it hasn't been given a chance to rebut the allegations. It also said it will vigorously contest the charges.
INSKEEP: Well, is JPMorgan Chase feeling burned here? Because in the heat of that moment it was seen as helping to save the economy from even worse ruin when they picked up Bear Stearns.
ZARROLI: I think that's probably true. I think that they, to some extent, were put under pressure by federal regulators, by the Federal Reserve, to step in and help these banks so the financial crisis wouldn't become worse than it actually did. And they did that. And a lot of them are really having to pay a price for that now.
INSKEEP: Aren't federal investigators also involved in this suit by New York state?
ZARROLI: Yeah. Well, this is a little confusing because the suit was brought by the attorney general of New York, Eric Schneiderman. But Schneiderman is also the cochairman of the Residential Mortgage-Backed Securities Working Group. Now, that is a task force that was formed by the federal government, by the Justice Department and the FBI, among others. It was formed to look into alleged wrongdoing in the financial sector in the years leading up to the crash.
Now, this task force was created at a time when the Obama administration had been under some criticism for not prosecuting, not going after any of the big banks involved in the crash. Now, you're seeing one of the banks facing civil charges. And this is the first time that's happened. We could well see other cases brought as well.
INSKEEP: Jim, thanks very much.
ZARROLI: You're welcome.
INSKEEP: That's NPR's Jim Zarroli. Transcript provided by NPR, Copyright National Public Radio.