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U.S. government to sue JPMorgan in mortgage case: sources

A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar
A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar

By Aruna Viswanatha and Emily Flitter

(Reuters) - The U.S. Justice Department is preparing to sue JPMorgan Chase & Co over mortgage bonds it sold in the run-up to the financial crisis, a sign the bank's legal troubles are not yet over.

A lawsuit, first reported by Reuters, could come as early as Tuesday, people familiar with the matter said on Monday.

JPMorgan spokesman Brian Marchiony and Justice Department spokeswoman Adora Andy Jenkins declined to comment.

The bank disclosed in August that federal prosecutors in California were conducting criminal and civil investigations into the bank's mortgage securities.

In those investigations, government lawyers have concluded that JPMorgan committed civil violations of securities laws in offering mortgage bonds from 2005 to 2007 that were backed by subprime and other risky residential mortgages.

The expected charges come less than one week after the largest U.S. bank paid $1 billion to resolve investigations into its "London Whale" trading scandal and issues surrounding the wrongful billing of credit-card customers.

It was not immediately clear whether the new charges would be civil, criminal or both.

A source familiar with the cases earlier told Reuters that the probes in the Eastern District of California involve mortgage bonds offered by JPMorgan itself and not those by companies it bought during the crisis such as Washington Mutual or Bear Stearns.

The case underscores the limits on JPMorgan chief executive Jamie Dimon's ability to draw a line under the bank's mounting regulatory headaches.

Even as the bank has attempted to move past major liability involving its London Whale trades, it continues to face a criminal probe and a lawsuit from the derivatives regulator over the matter.

The expected DOJ case is not the only U.S. probe involving the bank's mortgage-backed securities business. Prosecutors in Philadelphia and New Jersey are also working on cases, related in part to the bank's Bear Stearns unit, which it acquired in 2008 at the behest of the government.

New York Attorney General Eric Schneiderman also sued the bank last October over mortgage-backed securities packaged and sold by Bear Stearns.

TASK FORCE CASES

This newest case comes almost two years after President Barack Obama announced a task force to probe the misconduct that fueled the 2007-2009 financial crisis, and after Attorney General Eric Holder has promised to bring big cases involving the mortgage-backed securities.

The Justice Department has faced withering criticism for bringing few marquee cases against major financial firms or their executives.

In August, the DOJ and the U.S. Securities and Exchange Commission sued Bank of America Corp and accused it of investor fraud in the sale of $850 million of residential mortgage-backed securities.

On Tuesday, Bank of America is also scheduled to go to court to defend a separate U.S. case involving loans the bank's Countrywide unit sold to Fannie Mae and Freddie Mac.

(Reporting by Aruna Viswanatha in Washington and Emily Flitter and David Henry in New York; Editing by Gary Hill and Andre Grenon)

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