Fort Worth Employees’ Retirement Fund v JPMC -09-03701

National Debt

national debt

Regulators

Mortgage Related

Government Sponsored

Announcement Date: October 8, 2016

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

Civil Action No. 1:09-cv-03701-JGK

FORT WORTH EMPLOYEES’
RETIREMENT FUND, On Behalf of Itself and
All Others Similarly Situated,

Plaintiff,

vs.

J.P. MORGAN CHASE & CO., et al.,

Defendants

INTRODUCTION

1. This is a securities class action on behalf of all persons or entities who acquired the
Mortgage Pass-Through Certificates (collectively, the “Certificates”) of defendant J.P. Morgan
Acceptance Corporation I (“JP Morgan Acceptance”) pursuant and/or traceable to a false and
misleading Registration Statement filed on March 27, 2007, 1 along with false and misleading
Prospectus Supplements filed during February through April, 2007, each of which were expressly
incorporated by reference into the Registration Statement (collectively, the “Offering Documents”).

This action involves solely strict liability and negligence claims brought pursuant to the Securities Act of 1933 (“1933 Act”).

2. The Certificates were issued, underwritten and/or offered for sale by the defendants.
The Certificates are securities backed by pools of residential real estate loans. Defendants caused the Offering Documents to contain materially false and misleading statements and omissions concerning the Certificates, and the loans underlying them, in violation of the 1933 Act.

3. In summary, defendants made the following false and misleading statements in the
Offering Documents:

• Underwriting standards used to originate the loans supporting the Certificates
evaluated a prospective borrower’s ability to repay the loan;
• Property appraisers’ compensation was not affected by whether or not a loan was
approved; appraisals of the properties underlying the loans were based on recent
sales of comparable properties; and the appraisals conformed to the Uniform
Standards of Professional Appraisal Practice (“USPAP”) standards;
• The loans underlying the Certificates had certain, specific, loan-to-value (“LTV”)
ratios; and
• The Certificates had “investment grade” credit ratings.

4. The true, material facts, which defendants omitted from the Offering Documents,
were that:

• Borrowers were not evaluated on their ability to repay the loans; instead, loans were
made regardless of a borrower’s ability to repay; loan originators made as many
loans as possible regardless of repayment ability since they were selling the loans to
defendants at a profit; in addition, borrowers and loan originators were routinely
inflating borrowers’ incomes to falsely high levels to qualify borrowers for loans
they could not afford to repay;
• Property appraisers’ future compensation was contingent upon providing loan
originators with predetermined, inflated property appraisals which allowed borrowers
to qualify for loans; in addition, appraisals were not based on recent sales of
comparable properties; and appraisals did not conform to USPAP standards;
• Documents submitted for loan underwriting contained untrue and false statements –
potential borrowers and loan originators inflated borrowers’ incomes and appraisers
submitted falsely inflated property appraisals;
• Because the specified LTV ratios contained in the Offering Documents were based
on inaccurate and inflated property appraisals, the LTV ratios specified in the
Offering Documents were false, inaccurate and understated; and
• The credit ratings of the Certificates were inaccurate and understated the investment
risk associated with the Certificates because the ratings agencies used outdated
assumptions, overly relaxed rating criteria and inaccurate data in formulating the
ratings.

5. As a result, the Certificates sold to plaintiff and the Class had a much greater risk
profile than represented in the Offering Documents. Instead of being conservative “investment
grade” products as defendants represented in the Offering Documents, the Certificates were
extremely risky investments that should have actually been rated as “junk.”

6. The truth about the performance of the mortgage loans that secured the Certificates
subsequently was revealed to the public, disclosing that the Certificates were much riskier than
originally represented, and that holders would likely receive less absolute cash flow in the future and receive it, if at all, on an untimely basis. The credit rating agencies also put negative watch labels on the Certificates and downgraded previously assigned ratings. At present, each of the Certificates plaintiff bought have been downgraded from “AAA” investment grade at the time of purchase to “CCC” junk grade investments. As an additional result, the Certificates are no longer marketable in the secondary market at prices anywhere near the prices paid by plaintiff and the Class, and the holders of the Certificates are exposed to much more risk than the Offering Documents represented with respect to both the timing and absolutes cash flow to be received.

ft-worth-emp-retirement-fund-v-jpmc-doc-1-complaint-march-11-2009

ft-worth-emp-retirement-fund-v-jpmc-doc-361-stip-and-agreement-for-settlement-july-17-2015

ft-worth-emp-retirement-fund-v-jpmc-09-03701-docket-as-of-december-4-2015