A federal judge Wednesday approved a $153.6 million settlement between JPMorgan Chase & Co. and the top U.S. market regulator over allegations a mortgage CDO product defrauded the bank's investors at the time of the housing market collapse.
The U.S. Securities and Exchange Commission and the second-largest U.S. bank announced the settlement on June 21 of civil charges over JPMorgan's collateralized debt obligation (CDO) marketed as Squared CDO 2007-1.
The settlement was approved at a hearing in New York by U.S. District Judge Richard Berman, who described it as "another important step for the financial industry and the SEC in righting the wrongs of the recent financial crisis."
The settlement echoes on a smaller scale the $550 million accord that Goldman Sachs Group Inc. reached last July over its Abacus collateralized debt obligation.
Both cases involved charges that banks let hedge fund clients structure complex securities — and then bet against them — without disclosing their involvement to investors.
On Wednesday, SEC lawyer Matthew Martens told Berman that the settlement was in the interests of both parties and in the public interest.
John Savarese, a lawyer for JPMorgan Chase & Co. said the matter had been "thoroughly investigated" and the parties had reached "a fair and reasonable agreement."
The SEC also filed civil charges against Edward Steffelin, 41, a former managing director at the now bankrupt GSC Capital Corp., which served as collateral agent for Squared CDO 2007-1.
Steffelin's case has been assigned to a different judge.
JPMorgan sold $150 million of Squared CDO notes to pension funds and investors worldwide that lost most of their value in just 10 months, the SEC said.
The cases are SEC v. JPMorgan Securities LLC, U.S. District Court, Southern District of New York, No. 11-04206; and SEC v. Steffelin in the same court, No. 11-04204.
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