US steps up JPMorgan probe over Bear Stearns mortgages: sources

The US Department of Justice has stepped up a probe in recent weeks into Bear Stearns mortgage dealings in the run-up to the financial crisis, adding to JPMorgan Chase’s legal problems, according to three sources familiar with the situation.

JPMorgan bought failing Bear Stearns with government encouragement during the financial crisis in 2008, but then became embroiled in private lawsuits by mortgage bond insurers alleging that home loans underlying securities were rotten from the start.

The probe, news of which was first reported by Reuters in February, has picked up steam in recent weeks. Justice Department officials have taken sworn testimony from at least three people, including former Bear Stearns employees, about mortgage-backed securities, according to one of the sources.

A spokeswoman for the Justice Department declined to comment. A JPMorgan spokesman declined to comment.

The developments follow new mortgage-related investigations by the Eastern District of California. All are fresh obstacles for chief executive Jamie Dimon who is striving to restore the bank’s reputation for controlling risks after losing more than US$6.2 billion last year on its so-called “London Whale” derivatives trades.

The US Attorney for the Eastern District of California has been conducting criminal and civil investigations into the bank’s mortgage securities, the bank said on Wednesday.