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JPMorgan Chase Accused Of Fabricating Paperwork, Imposing Extra Costs On Borrowers

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In a case that suggests the financial crisis far from marked the end of big bank misconduct, JPMorgan Chase is facing a potential class action lawsuit over claims that it manipulated thousands of mortgage documents in order to gain a financial advantage in bankruptcy cases.

The lawsuit, led by plaintiff Ernest Michael Bakenie, has yet to be recognized as an official class action filing in the California district court where it's taking place, according to the blog Naked Capitalism. Still, the accusation is a major one: It alleges JPMorgan Chase increased profits by methodically fabricating paperwork in part to impose extra costs on borrowers over the course of thousands of bankruptcy cases dating back to 2009.

The charges are particularly serious given the national outcry over mortgage fraud and robo-signing in recent years, and a general atmosphere of increased scrutiny on mortgage activity since the housing crisis, which critics allege was caused in part by unethical mortgage practices on the part of big banks and lenders.

News of the case arrives amid what is already shaping up to be another season of setbacks for JPMorgan, with the bank's profits falling by nearly a quarter in the past three months. In addition, the bank has halted its efforts to collect on consumer debts in multiple cities across the country.

The suit also comes just a few months after JPMorgan agreed to pay $153 million to settle another fraud case with the U.S. Securities and Exchange Commission, this one based on accusations that JPMorgan was negligent in providing important details to investors about a mortgage transaction -- claims that JPMorgan neither admitted nor denied.

It's not yet clear whether something similar will happen with the California case, although the SEC settlement, reached in June 2011, wasn't the first nor the last time that JPMorgan agreed to pay out a major sum in order to bring legal charges to a speedy conclusion.

JPMorgan isn't the first big bank to be hit with a suit alleging mortgage misconduct in recent months. Firms including Bank of America, Allied Home Mortgage, Wells Fargo, Citigroup and Morgan Stanley are either fielding legal accusations related to mortgage misconduct or in the process of reaching major settlements on the topic.

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