The US National Credit Union Administration (NCUA) has filed a lawsuit against JP Morgan Securities and Bear, Stearns & Co, for breaching federal and state securities laws over $3.6bn mortgage-backed securities to four corporate credit unions.
The federal agency alleges that the firms distorted facts pertaining to the underwriting and later sold mortgage-backed securities to US Central, Western Corporate, Southwest Corporate and Members United Corporate federal credit unions.
According to the case filed in the Federal District Court in Kansas, the defective securities caused all four corporate credit unions to become insolvent and sustain substantial losses and consequently placed into NCUA conservatorship.
The complaint charged the firm for ignoring underwriting guidelines and presenting unreal facts, which caused the credit unions to believe the risk of loss to be nominal.
NCUA board chairman Debbie Matz said, "Bear, Stearns was one of several Wall Street firms that sold faulty securities to corporate credit unions, leading to their collapse and enormous losses across the industry."
In similar cases, the US watchdog has sued eight firms including Barclays Capital, Credit Suisse, Goldman Sachs, JP Morgan Securities, RBS Securities, UBS Securities, and Wachovia.