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JPMorgan to Face Dexia Lawsuit Again

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The U.S. District Judge Jed Rakoff has revoked his earlier order to dismiss a major portion of the lawsuit filed by Brussels based Dexia N.V./S.A against JPMorgan Chase & Co. (JPM - Free Report) . The lawsuit accused JPMorgan of deliberately selling risky mortgage-backed securities (MBS) worth $1.6 billion to Dexia during the housing boom prior to the 2008 financial meltdown.

In justifying the revival of the lawsuit, Rakoff stated that he lacked any jurisdiction under the Edge Act to dismiss the case. Further, citing the ruling of 2nd U.S. Circuit Court of Appeals in New York for American International Group, Inc.’s (AIG - Free Report) lawsuit against Bank of America Corporation (BAC - Free Report) , Rakoff decided to reverse his decision for the above-mentioned lawsuit.

Now, the trial will resurface in the New York state court, where it began in Jan 2012, when Dexia sued JPMorgan along with its affiliates – The Bear Stearns Companies, Inc and Washington Mutual, Inc. According to the subsidiary of Dexia – FSA Asset Management LLC – the accused clearly knew of the risks associated with the mortgage securities. However, JPMorgan allegedly sold massive quantities of these securities to Dexia to reduce its own exposure.

The Dexia lawsuit attracted media attention after a series of emails were discovered suggesting JPMorgan’s sale of massive quantities of these securities, while being aware of the associated risks.

In Apr 2013, Rakoff had allowed Dexia to proceed with only 5 claims, while dismissing nearly 60 claims. This significantly slashed the potential legal settlement to $5.7 million from $774 million.

Apart from JPMorgan, other banks including BofA and Morgan Stanley (MS - Free Report) continue to face lawsuits concerning the sale of MBS prior to the economic crisis. In addition, JPMorgan faces a number of other lawsuits alleging legal malfeasance.

Over the last couple of years, JPMorgan has been doling out millions to settle litigations. However, the company’s strong fundamentals continue to act as a catalyst.

JPMorgan currently carries a Zacks Rank #2 (Buy).

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