JPMorgan raises questions about lawyer at New York AG's office

JPMorgan Chase & Co has raised questions about the involvement of a senior lawyer from the New York Attorney General's office in one of the few government lawsuits alleging wrongdoing by banks in the run-up to the financial crisis.

The case against JPMorgan is similar to one that the lawyer had worked on before joining the Attorney General's office, JPMorgan said in court papers this week, raising the possibility of a conflict of interest.

JPMorgan said it had asked New York Attorney General Eric Schneiderman "whether there is additional information about this lawyer's involvement ... before deciding what further action is warranted."

The bank did not specify what action it could take, but legal experts said JPMorgan could argue that the New York Attorney General's office had a conflict of interest.

Schneiderman's office did not immediately comment on JPMorgan's request for information.

JPMorgan's court filing did not identify the lawyer by name but gave the title of executive deputy attorney general for economic justice - the position held by former Paterson Belknap Webb & Tyler partner Karla Sanchez.

While at Paterson Belknap, Sanchez helped bring a case by bond insurer Ambac against JPMorgan over the sale of toxic assets by its Bear Stearns unit before the financial crisis.

Schneiderman brought the new, similar case against JPMorgan in October.

Sanchez joined Schneiderman's team in January 2011. On June 7, 2011, the AG's office barred her from working on its probe of mortgage-backed securities, citing her work in private practice, according to documents obtained by Reuters under New York's Freedom of Information Law.

The AG's office lifted the restriction on April 23, 2012, according to the documents, allowing her to work on the Bear Stearns investigation.

Six months later, on November 9, 2012, she was once again banned from certain mortgage-backed securities cases, according to the documents. In its court filing this week, JPMorgan said the attorney general's office apparently reimposed the ban after the bank raised concerns.

Sanchez did not respond to a request to comment on her involvement in the case.

James Freedland, a spokesman for Schneiderman, said recusal decisions are based on the facts at any given time. "These decisions were made not only out of an abundance of caution, but also based on changing circumstances," Freedland told Reuters in December.

Bennett Gershman, an expert on prosecutorial misconduct at Pace University Law School, called it "highly unusual" for a lawyer in the attorney general's office to be recused from working on a probe, then back on the case, and then recused again.

"I think a judge would be seriously concerned," he said.

JPMorgan could bring a motion to disqualify Schneiderman's office from the case, Gershman said. The bank could argue that an irreparable conflict of interest exists, he said.

It is unclear which other probes of mortgage-backed securities Sanchez has worked on.

Schneiderman filed a similar lawsuit against Credit Suisse in November. Patterson Belknap had also sued Credit Suisse on behalf of Ambac.

The New York Attorney General case is People v. J.P. Morgan Securities LLC, 451556/2012 New York state Supreme Court (New York County).

The private lawsuit is Ambac Assurance Corporation v. EMC Mortgage LLC, 650421/2011, New York state Supreme Court (New York County).

(Reporting by Karen Freifeld; additional reporting by Anna Sussman; Editing by Eddie Evans, Gary Hill)