JPMorgan Chase has agreed to pay $905,000 in a settlement with Indiana officials over losses from mortgage-backed securities purchased in 2006, just before the controversial investment vehicle contributed to a national financial meltdown.
Indiana Secretary of State Connie Lawson said Tuesday that the settlement was the result of an investigation into the sale of residential-mortgage backed securities in Indiana. The Indiana State Teachers’ Retirement Fund purchased such investments issued by the New York-based bank in 2006.
The Secretary of State’s Office has alleged that JPMorgan Chase did not disclose critical information about the quality of the collateral loans underpinning the securities to investors who purchased them.
“Investors have the right to know all the facts and to receive complete information when deciding to invest,” Lawson said in a prepared release. “This right extends whether a casual Hoosier investor or an institutional investor.”
Under the terms of the settlement agreement, JPMorgan Chase agreed to reimburse the retirement fund for $135,000 lost on the 2006 investment.
The agreement also requires JPMorgan Chase to pay penalties and costs of $520,000 and to send $250,000 to the state’s Investor Protection Trust, which promotes financial literacy and fraud protection in Indiana.
A spokeswoman for JPMorgan Chase said the company would decline to comment on the settlement. The bank did not admit to wrongdoing as part of the settlement, according to Valerie Warycha, communications director for the secretary of state's office.
Sold by many investment banks in the 2000s, mortgage-backed securities were widely credited with contributing to the financial crisis of 2008 and Great Recession. Weakness in the housing market and loose lending practices led to defaults on the mortgages underpinning the securities, decreasing their value and setting off a chain reaction that engulfed several financial institutions.