Ambac Assurance Corp. sued JPMorgan Chase & Co.’s EMC Mortgage and JPMorgan Securities units in New York state court, claiming it was fraudulently induced to participate in mortgage- backed securitization transactions.
The insurer is seeking to be made whole, as if it had never entered into the 2005 to 2007 transactions worth hundreds of millions of dollars, according to the complaint filed yesterday in Manhattan.
The actions covered by the lawsuit began when EMC was owned by Bear Stearns & Co. and continued after 2008, when it was bought by New York-based JPMorgan, according to the complaint.
Ambac said JPMorgan engaged in a “bad-faith strategy” and rejected Bear Stearns’s findings of loans that breached representations.
“Bear Stearns’ material misrepresentations, omissions and breaches of the parties’ agreements fundamentally altered and essentially gutted the parties’ bargain,” according to the complaint. “JPMorgan caused EMC to reject legitimate repurchase demands.”
In mid-2006, Bear Stearns induced investors to buy and Ambac to insure securities backed by a pool of mortgages that a Bear Stearns deal manager called a “sack of s--t,” according to the complaint. Bear Stearns disregarded the quality of the loans to increase the volume for securitizations, Ambac said. When the market collapse exposed the defective loans, JPMorgan took over Bear Stearns and prevented EMC from honoring its promises to disclose and repurchase defective loans, Ambac said.
Howard Opinsky, a spokesman for JPMorgan, had no immediate comment.
The case is Ambac Assurance Corp. v EMC Mortgage Corp., 650421/2011, New York state Supreme Court (Manhattan).
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