It's officially called the Residential Mortgage Backed Securities Working Group: a task force of state and federal prosecutors created by President Obama this past January to investigate banks that misbehaved in the run-up to the financial crisis, specifically through the pooling and sale of residential mortgage-backed securities.
On Monday, the group announced its first legal action, with New York's attorney general filing suit against JPMorgan Chase
For my next trick, the Martin Act
Residential mortgage-backed securities (RMBS), if you remember, were those very creative -- and seemingly innocent -- debt instruments that ended up almost taking down the financial system.
The suit alleges that Bear, which JPMorgan bought in March of 2008, as it was collapsing, lost its clients more than $20 billion in value for "fraudulent and deceptive acts in promoting and selling" RMBS. Whether or not JPMorgan can be held accountable for the sins of Bear will be up to a judge, but the RMBS Working Group has a trick up its sleeve that will make JPMorgan's -- and any other big banks' -- prosecution that much easier.
In charging JPMorgan with securities fraud, New York's attorney general is employing the Martin Act. Enacted in 1921, it allows state prosecutors to pursue charges of fraud without the government having to prove the defendant intended fraud. As such, the state has a much lower bar to bring cases than, say, the average civilian plaintiff, or even the Securities & Exchange Commission.
Foolish bottom line
Don't be surprised if Bank of America
Thanks for reading, and for thinking. What else is a Fool to do? Speaking of which, while you're here, check out our new in-depth company report on Bank of America. It thoroughly details B of A's prospects and gives three reasons to buy and three reasons to sell. Just click here to get access.
The Motley Fool owns shares of Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a harrowing disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.