The New York attorney general Eric Schneiderman filed a civil fraud lawsuit alleging that Bear Stearns and its lending unit, EMC Mortgage, duped investors who bought mortgage securities offered by the companies from 2005 to 2007.
The court filing stated that the firms made material misrepresentations about the quality of the loans in the securities, and ignored evidence of broad defects among the loans that they pooled and sold to investors.
The attorney claimed that Bear Stearns "systematically failed to evaluate the loans", which led the investors to lose over $20bn on more than 100 of the securities.
Bear Stearns made no effort to ask the originator of bad loans to repurchase them back, instead demanded cash payments from the lenders and kept the money, the lawsuit alleged.
A JPMorgan spokesman Joseph Evangelisti told New York Times, "We’re disappointed that the New York A G decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record — instead relying on recycled claims already made by private plaintiffs."
