By Jonathan Stempel
NEW YORK -- JPMorgan Chase (JPM) has agreed in principle to settle class action litigation arising from Bear Stearns' sale of $17.58 billion of mortgage securities that proved defective during the recent U.S. housing and financial crises.
The largest U.S. bank, which bought Bear in 2008, will pay roughly $500 million to investors led by a group of pension funds, a person familiar with the matter said Friday. The person requested anonymity because the terms haven't been made public.
JPMorgan declined to comment. A lawyer for the investors didn't immediately respond to requests for comment.
%VIRTUAL-WSSCourseInline-963%The accord, which requires court approval, was disclosed in a Thursday night filing with the U.S. District Court in Manhattan.
It is separate from JPMorgan's $13 billion settlement with regulators in November 2013 over mortgage securities sales.
The latest accord resolves claims that Bear violated federal securities laws by selling certificates backed by more than 47,000 largely subprime and low documentation "Alt-A" mortgages in 14 offerings from May 2006 to April 2007.
Investors said the offering documents contained false and misleading statements about the underwriting guidelines used by Bear's EMC Mortgage unit, Countrywide Home Loans and other lenders, and the accuracy of associated property appraisals.
Bear wasn't accused of fraud, but investors sought to hold it strictly liable and negligent for their losses.
They said nearly all the certificates were cut to "junk" status, although roughly 92 percent, or $16.2 billion, were once rated "triple-A."
The lead plaintiffs are the Public Employees' Retirement System of Mississippi and the New Jersey Carpenters Health Fund. Both sides plan by Feb. 2 to seek preliminary approval of the settlement from U.S. District Judge Laura Taylor Swain.
JPMorgan has resolved similar litigation over mortgage offerings from the former Washington Mutual Inc, which the New York-based bank also bought in 2008. It still faces litigation over some of its own mortgage offerings.
The case is In re: Bear Stearns Mortgage Pass-Through Certificates Litigation, U.S. District Court, Southern District of New York, No. 08-08093.
By Jonathan Stempel