JPMorgan, DOJ Reach Tentative $13B Settlement

, The Associated Press

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In August, the Justice Department accused Bank of America Corp., the second-largest U.S. bank, of civil fraud in failing to disclose risks and misleading investors in its sale of $850 million in mortgage bonds in 2008. The Securities and Exchange Commission filed a related lawsuit. The government estimates that investors lost more than $100 million on the deal. Bank of America disputes the allegations.

The latest action against the beleaguered JPMorgan brought the weight of the Obama administration against the bank, which has enjoyed a reputation for managing risk better than its Wall Street competitors. JPMorgan came through the financial crisis in better shape than most of its rivals and Dimon, its CEO, charmed lawmakers and commanded the attention of regulators in Washington.

A number of big banks, including JPMorgan, Goldman Sachs and Citigroup, previously have been accused of abuses in sales of securities linked to mortgages in the years leading up to the crisis. Together they have paid hundreds of millions in penalties to settle civil charges brought by the SEC, which accused them of deceiving investors about the quality of the bonds they sold.

JPMorgan settled SEC charges in June 2011 by agreeing to pay $153.6 million and reached another such agreement for $296.9 million last November.

The banks in all the SEC cases were allowed to neither admit nor deny wrongdoing -- a practice that brought criticism of the agency from judges and investor advocates.

But in a first for a major company, JPMorgan admitted in the agreement with the SEC over the $6 billion trading loss in its London operation that it failed in its oversight. The admission could leave the bank vulnerable to millions of dollars in lawsuits. JPMorgan also reached settlements over the trading loss with the Federal Reserve, the U.S. Office of the Comptroller of the Currency and Britain's Financial Conduct Authority.

The Justice Department is still pursuing a criminal investigation of the trading loss and a possible cover-up at the bank. Two of the bank's former traders in London are facing criminal charges. The SEC also is investigating individuals involved in the trading loss.

Mounting legal costs from government proceedings pushed JPMorgan to a rare loss in the third quarter, the first under Dimon's leadership. The bank reported Oct. 11 that it set aside $9.2 billion in the July-September quarter to cover a string of litigation stemming from the financial crisis and its "London Whale" trading debacle. JPMorgan said it has placed a total of $23 billion in reserve to cover potential legal costs.

Associated Press writer Marcy Gordon in Washington contributed to this report.

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