'Bear' E-Mails Describing Mortgage Securities Peddled To Institutional Investors As A "Sack Of Shi*" May Leave JP Morgan Chase Holding The Bag

Investigative reporter Terri Buhl writes in The Atlantic:

• Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering.

• Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."(1)

• News of internal whistleblowers coming forward from Bear's mortgage servicing division, EMC, was first reported by The Atlantic in May of last year. Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper.

For more, see E-mails Suggest Bear Stearns Cheated Clients Out of Billions (Lawsuit alleges the bank took extreme measures to defraud investors, and now JPMorgan may be on the hook).

Thanks to Bill Collins of Frontier Abstract, Rochester, NY for the heads-up on this story.

(1) According to the story, Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as "SACK OF SHIT [2006-]8" and said, "I hope your [sic] making a lot of money off this trade."