US home and auto insurer Allstate Corp has filed a lawsuit against JPMorgan Chase & Co and subsidiaries Bear Stearns and Washington Mutual (WaMu) alleging that the bank fraudulently sold it about $700m of residential mortgage-backed securities backed by toxic loans.
In its complaint, Allstate alleged that the banks lured it into the transaction by suggesting the securities marketed by JPMorgan, Bear Stearns and WaMu were backed by highly-rated mortgage securities.
Instead, JPMorgan’s securities hid a ‘toxic mix of loans given to borrowers that could not afford the properties’ and who were likely to default, according to the complaint filed in the New York state Supreme Court in Manhattan.
JPMorgan also failed to disclose reports from underwriters and third-party due diligence firms that had previously identified loans in the portfolio as not in compliance with underwriting guidelines, said the lawsuit.
The insurer is claiming damages "in an amount to be proven at trial" including losses and court costs, the statement said.
Allstate has also sued Bank of America (JPM) for losses it allegedly suffered on $700m of mortgage securities purchased from Countrywide Financial in 2003.