How the NY AG built his RMBS case against JP Morgan for Bear Stearns Sins

This story has been updated

One documentary film maker, one investigative journalist, and one law firm willing to take a risk led to the lawsuit the New York Attorney General just filed against JP Morgan for a system wide effort to defraud mortgage investors by Bear Stearns.

My readers and viewers of RT’s The Keiser Report know they first learned about Bear Stearns fraud back in 2010 after I was the first journalist to report for The Atlantic Bear Stearns whistleblowers were on the record saying they were directed to make up loan level detail for the mortgage bond raters. From there I broke news again at The Atlantic in January 2011 detailing how Bear’s own internal documents showed the RMBS traders, under Tom Marano, were literally stealing billions from the clients they’d sold the mortgage bonds to via a double dipping scheme.

The documents to outline the double dipping by Bear traders was discovered by PBWT attorney Eric Haas – who also has an accounting background. It was this evidence that enabled him to add a fraud claim, that survived a motion to dismiss, to Ambac’s suit and year and a half later JP Morgan had to admit in their regulatory filings for shareholders that they were now looking at $120 billion in possible RMBS fraud and putback suits. These additional suits filed by the FHFA for the GSE’s and tons of other mortgage investors would have never happen if PBWT hadn’t been first to do the gritty research and detail to build their claims against $JPM/$BS/$EMC.

While this is likely the most impactful reporting of my career it couldn’t have happen with out one documentary film maker, Nick Verbitsky of BlueChip Films. He was first to find former EMC/Bear analyst to go on camera and detail the methods of deceit and fraud by the billions. It was Verbitsky’s unedited interviews that led to my first The Atlantic story. And it was that story to helped open up research for attorneys at Paterson Belknap for their client Amabc.

I remember getting a call notifying me the NY AG’s office had read my reporting and wanted to reach filmmaker Nick Verbitsky to get these unedited whistleblower tapes last year. And then we watched AG Schneiderman slowly start to interview the Bear Stearns whistleblowers which I reported multiple times on RT’s The Keiser Report. A program that was bold enough to trust my reporter instincts, go up against one of the world’s most powerful banks, JP Morgan, and know it was a good idea to warn viewers the bank is going to get their asses sued and it could affect the financial health of the company.

The NY AG also got a push from New York State Assemblyman Morelle who asked him to investigated Bear/JP Morgan for insurance fraud using New York State insurance laws. I first reported the NY AG was beginning his investigation in April 2011 for DealFlow Media’s The distressed Debt Report. Today we see copy cat New York Times reporter Gretchen Morgenson source that people familiar with the AG’s investigation told her he began in the Spring of 2011. In reality Gretchen read my original reporting and the The Atlantic’s mention of it back in April 2011 and I find it absurd that she can’t properly credit where she learned about it first. I have to wonder if Assemblyman Morelle, who chairs the insurance committee, is satisfied with the NY AG only bringing civil fraud charges against JP Morgan – if he’s not will he push the DOJ’s Southern District of New York office to carry the ball over the line and actually charge individual bank traders with criminal wrong doing? You can see a slew of likely illegal actions the Bear traders did that the NY AG left out of his suit in a story I wrote for DealFlow Media last August.

Today’s one of those days when it feels good to be an independent financial journalist and I want to thank my editors at DealFlow Media and The Atlantic along with Max Keiser and his producer Stacy Hebert at RT for publishing all my original reporting on this crime. To my fellow journalist just catching up on the story don’t forget to credit those who were the catalyst for action.

What’s next – I think PBWT and other Big Law firms, who have copied their suit and sued $JPM, are going start taking some serious settlement offers from $JPM and I expect it to be in the billions. I mean look at all additional whistleblowers that came forward from other firms Bear Stearns hired to help them sell mortgage bonds.

As far as JP Morgan shareholders go, if the bank’s payout to settle rmbs fraud and putback claims is in the double-digit billions then I’d expect lawyers to start filing class actions suits against JP Morgan for not disclosing enough rmbs putback risk. This is an issue I wrote about in May. There is also the fact that the SEC went to $JPM back in 2010 and told them they are not holding enough capital for putbacks – I reported this on Max Keiser’s show in November 2010. So why did the SEC allow this big bad bank to under-reserve for the last two years and report higher earnings? That’s a question we’d all like answered but are not likely to get.

Editors Note: Verbitsky’s doc film about Bear Stearns, Confidence Game, is showing at the Bruce Museum on Thursday night in Greenwich,CT. I am a panel guest, along with Roddy Boyd and William Cohan who will be speaking with Veribitsky after the movie. Come see it and hear first hand how we uncovered this fraud and how regulators came to us help build their case.