UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR THE FEDERAL ___ CIV. ___ (___) NATIONAL MORTGAGE ASSOCIATION AND THE FEDERAL HOME LOAN MORTGAGE CORPORATION, COMPLAINT Plaintiff, JURY TRIAL DEMANDED -against- JPMORGAN CHASE & CO.; JPMORGAN CHASE BANK, N.A.; J.P. MORGAN MORTGAGE ACQUISITION CORPORATION; J.P. MORGAN SECURITIES LLC (f/k/a J.P. MORGAN SECURITIES INC.); J.P. MORGAN ACCEPTANCE CORPORATION I; EMC MORTGAGE LLC (f/k/a EMC MORTGAGE CORPORATION); BEAR STEARNS & CO., INC.; STRUCTURED ASSET MORTGAGE INVESTMENTS II INC.; BEAR STEARNS ASSET BACKED SECURITIES I LLC; WAMU ASSET ACCEPTANCE CORPORATION; WAMU CAPITAL CORPORATION; WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION; LONG BEACH SECURITIES CORPORATION; CITIGROUP GLOBAL MARKETS, INC.; CREDIT SUISSE SECURITIES (USA) LLC; GOLDMAN, SACHS & CO.; RBS SECURITIES, INC.; DAVID M. DUZYK; LOUIS SCHIOPPO, JR.; CHRISTINE E. COLE; EDWIN F. MCMICHAEL; WILLIAM A. KING; BRIAN BERNARD; MATTHEW E. PERKINS; JOSEPH T. JURKOWSKI, JR.; SAMUEL L. MOLINARO, JR.; THOMAS F. MARANO; KIM LUTTHANS; KATHERINE GARNIEWSKI; JEFFREY MAYER; JEFFREY L. VERSCHLEISER; MICHAEL B. NIERENBERG; RICHARD CAREAGA; DAVID BECK; DIANE NOVAK; THOMAS GREEN; ROLLAND JURGENS; THOMAS G. LEHMANN; STEPHEN FORTUNATO; DONALD WILHELM; MICHAEL J. KULA; CRAIG S. DAVIS; MARC K. MALONE; MICHAEL L. PARKER; MEGAN M. DAVIDSON; DAVID H. ZIELKE; THOMAS W. CASEY; JOHN F. ROBINSON; KEITH JOHNSON; SUZANNE KRAHLING; LARRY BREITBARTH; MARANGAL I. DOMINGO; TROY A. GOTSCHALL; ART DEN HEYER; AND STEPHEN LOBO Defendants. TABLE OF CONTENTS Page NATURE OF ACTION ...................................................................................................................2 PARTIES .......................................................................................................................................12 The Plaintiffs and the GSEs ...............................................................................................12 The JPMorgan Entities ......................................................................................................13 The WaMu Entities .............................................................................................................19 The Long Beach Entities ....................................................................................................23 The Other Underwriter Defendants ...................................................................................27 The Non-Party Originators ................................................................................................29 JURISDICTION AND VENUE ....................................................................................................29 FACTUAL ALLEGATIONS ........................................................................................................30 I. The Securitizations .............................................................................................................30 A. Residential Mortgage-Backed Securitizations In General .....................................30 B. The Securitizations At Issue In This Case .............................................................32 C. The Securitization Process .....................................................................................37 1. J.P. Morgan Acquisition, EMC, WaMu Bank, WaMu Securities, and Long Beach Mortgage Transfer The Mortgage Loans To Special Purpose Trusts ...............................................................................37 2. The Trusts Issue Securities Backed by the Loans ......................................40 II. The Defendants’ Participation in the Securitization Process .............................................48 A. The Role of Each of the JPMorgan Defendants .....................................................48 1. J.P. Morgan Acquisition ............................................................................49 2. J.P. Morgan Acceptance ............................................................................49 3. J.P. Morgan Securities ...............................................................................50 4. JPMorgan Chase and JPMorgan Bank .......................................................50 i 5. The JPMorgan Individual Defendants .......................................................51 B. The Role of Each of the Bear Stearns Entities .......................................................53 1. EMC ...........................................................................................................54 2. SAMI and BSABS .....................................................................................55 3. BSC and J.P. Morgan Securities as Successor to BSC ..............................56 4. JPMorgan Chase as Successor to BSI ........................................................56 5. The Bear Stearns Individual Defendants ...................................................57 C. The Role of Each of the WaMu Entities ................................................................60 1. JPMorgan Bank as Successor to WaMu Bank ...........................................61 2. WaMu Securities ........................................................................................62 3. WaMu Acceptance .....................................................................................64 4. WaMu Capital ............................................................................................64 5. The WaMu Individual Defendants .............................................................65 D. The Role of Each of the Long Beach Entities ........................................................68 1. JPMorgan Bank as Successor to WaMu Bank and Long Beach Mortgage ....................................................................................................69 2. Long Beach Securities ...............................................................................71 3. The Long Beach Individual Defendants ....................................................71 E. The Other Underwriter Defendants .......................................................................74 F. Defendants’ Failure To Conduct Proper Due Diligence ........................................75 1. The JPMorgan Defendants .........................................................................77 2. The Bear Stearns Entities ...........................................................................80 3. The WaMu Entities ....................................................................................81 4. The Long Beach Entities ............................................................................86 G. Liability of JPMorgan Chase and JPMorgan Bank as Successors in Interest ........90 ii 1. Liability of the JPMorgan Defendants as Successors in Interest to the Bear Stearns Entities ............................................................................90 2. Liability of the JPMorgan Defendants as Successors in Interest to the WaMu and Long Beach Entities ..........................................................92 III. The Registration Statements and the Prospectus Supplements .........................................98 A. Compliance With Underwriting Guidelines ..........................................................98 1. JPMorgan’s Statements Regarding Compliance With Underwriting Guidelines ..................................................................................................98 2. Bear Stearns’s Statements Regarding Compliance With Underwriting Guidelines ..........................................................................101 3. WaMu’s Statements Regarding Compliance With Underwriting Guidelines ................................................................................................103 4. Long Beach’s Statements Regarding Compliance With Underwriting Guidelines ..........................................................................105 5. Statements Regarding Representations Made by the Originator and Seller ........................................................................................................108 B. Statements Regarding Occupancy Status of Borrower ........................................109 C. Statements Regarding Loan to Value Ratios .......................................................114 D. Statements Regarding Credit Ratings ..................................................................119 IV. Falsity Of Statements in the Registration Statements and Prospectus Supplements ......122 A. The Statistical Data Provided in the Prospectus Supplements Concerning Owner Occupancy and LTV Ratios Was Materially False ..................................122 1. Owner Occupancy Data Was Materially False ........................................122 2. Loan-to-Value Data Was Materially False ..............................................128 B. The Originators of the Underlying Mortgage Loans Systematically Disregarded Their Underwriting Guidelines .......................................................134 1. Government Investigations and Private Actions Have Confirmed That the Originators of the Loans in the Securitizations Systematically Failed to Adhere to Their Underwriting Guidelines .......135 iii 2. The Collapse of the Certificates’ Credit Ratings Further Indicates that the Mortgage Loans Were Not Originated in Adherence to the Stated Underwriting Guidelines ...............................................................142 3. The Surge in Mortgage Delinquency