Allstate Corp. sued JPMorgan Chase & Co. on Wednesday to recover losses after the bank allegedly misrepresented the risks on more than $757 million of mortgage securities the insurer bought.
The lawsuit against the second-largest U.S. bank was filed just seven weeks after Allstate filed a similar lawsuit against Bank of America Corp., the largest bank, over losses on more than $700 million of mortgage securities.
Jennifer Zuccarelli, a JPMorgan spokeswoman, declined to comment on the lawsuit, which was filed Wednesday in the New York State Supreme Court in Manhattan.
Allstate, the largest publicly-traded U.S. home and auto insurer, is one of many to sue lenders for allegedly misleading them about mortgage securities.
The Northbrook, Illinois-based company said it suffered “significant losses” after JPMorgan and its affiliates misled it into believing it was buying “highly-rated, safe securities” backed by high-quality loans.
“In fact,” Allstate said, “defendants knew the pool was a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default.”
The securities include many backed by Bear Stearns Cos., which was near collapse before JPMorgan bought it in May 2008, and Washington Mutual Inc., which failed and whose bank operations were bought by JPMorgan four months later.
Each of those companies was heavily exposed to subprime and other risky mortgages.
Allstate said most of the securities it bought from the various defendants started out with “triple-A” ratings, the same carried by U.S. government debt, but that 97 percent now carry “junk” ratings.
It is seeking to undo the securities purchases, which took place between 2004 and 2007, plus unspecified damages.
JPMorgan in January said it set aside an additional $1.5 billion for legal reserves, mainly to cover mortgage cases.
“This litigation is going to be fought almost securitization by securitization,” Chief Executive Jamie Dimon said on a Jan. 14 conference call. “It is going to be a long ugly mess. The important thing is it is not going to be life-threatening to JPMorgan.”
JPMorgan also faces a $6.4 billion lawsuit by the court-appointed trustee seeking money for victims of Bernard Madoff’s Ponzi scheme. The bank was Madoff’s principal banker for more than 20 years. JPMorgan has denied wrongdoing.
The case is Allstate Bank et al v. JPMorgan Chase Bank NA et al, New York State Supreme Court, New York County, No. 650398/2011.
(Reporting by Jonathan Stempel in New York; Editing by Tim Dobbyn)
Was this article valuable?
Here are more articles you may enjoy.