JPMorgan Chase & Co. has agreed to pay $153.6 million to settle civil fraud charges that it misled buyers of complex mortgage investments just before the housing market collapsed.
The settlement with the Securities and Exchange Commission announced Tuesday is one of the most significant legal actions targeting Wall Street's role in the 2008 financial crisis. It comes a year after Goldman Sachs & Co. paid $550 million to settle similar charges.
As part of the settlement, investors who were harmed will receive all of their money back, the SEC said. JPMorgan also agreed to improve the way it reviews and approves mortgage securities transactions.
In its announcement, the SEC said it had charged Edward Steffelin, who headed the team at an investment firm involved in the selection of mortgage securities.
The bank neither admitted nor denied wrongdoing under the settlement.
The settlement for JPMorgan amounts to less than 1 percent of the bank's 2010 net income of $17.4 billion — which means JPMorgan would earn that much in less than one week.
Regulators have been investigating a number of major banks' actions ahead of the financial crisis. More charges are expected.
The penalty is the highest since Goldman Sachs & Co. settled civil fraud charges in last summer. Those were the largest against a Wall Street firm in SEC history. But the Goldman settlement amounted to less than 5 percent of Goldman's 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.
Goldman was accused of steering investors toward mortgage investments without telling the buyers that the securities had been crafted with input from a client that was betting on them to fail.
In the JPMorgan lawsuit, the SEC said the investment bank failed to disclose to investors in the securities that Magnetar Capital hedge fund played a big role in choosing the securities and stood to benefit if they defaulted.
Magnetar essentially made a $600 million bet that the investments would fail once the deal closed in May 2007, the SEC said. Just one month earlier, JPMorgan had launched a "frantic global sales effort" going beyond its traditional customers to sell mortgage securities, according to the agency's suit.