Big banks are bracing for a massive settlement with the Securities & Exchange Commission that could total billions of dollars in what could be the most sweeping effort by federal regulators to hold Wall Street accountable for its financial-crisis sins, the FOX Business Network has learned.
The SEC is working with the big banks to reach an agreement that involved the packaging and sales of mortgage-backed securities in the years leading up to the 2008 financial crisis, according to people with direct knowledge of the matter.
One person with direct knowledge of the SEC activities says major banks like JP Morgan (JPM), Bank of America (BAC) and Citigroup (C) could end up paying “hundreds of millions of dollars each” to settle the case. The entire settlement could cost the nation’s big banks well over $1 billion.
The settlement could emerge as the largest financial-crisis-related agreement between federal securities regulators and the big banks, though it's coming nearly four years after the debacle and as the five-year statute of limitations for bringing charges is nearing.
Mortgage-backed securities played a central role in the financial crisis; as underlying mortgages began to fall into default during the housing bust, the bonds themselves sharply declined in value, culminating in massive losses throughout the financial system.
Officials from JP Morgan, Bank of America and Citigroup declined to comment; an official from the SEC had no comment.
The broader federal probe comes as New York attorney general Eric T. Schneiderman earlier in the week filed a civil lawsuit against JPMorgan over allegedly fraudulent mortgage-backed securities packaged by Bear Stearns, the Wall Street firm the big bank acquired at the start of the financial crisis in March 2008.
The civil suit raised some hackles over at the SEC because it focused narrowly on the activities of Bear Stearns, while its investigation of JP Morgan is broader, involving activities of the entire bank, not just Bear.
Moreover, JP Morgan received a letter from the SEC following the acquisition in which the agency agreed to take into account the bank’s lack of involvement in possible illegality committed by the firm or its executives when weighing future enforcement actions.
A spokesman for Schneiderman had no comment.
Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.