California's retirement funds for teachers and state employees will receive nearly $300 million from a sweeping settlement between the Justice Department and financial titan JPMorgan.
The Justice Department has wrung a $13 billion settlement out of JPMorgan for misrepresenting the value of securities made up of mortgages. The widespread failure of similar financial products played a key role in triggering the 2007 financial crisis, and among the victims were public retirement funds that had invested in mortgage-backed securities.
Under the settlement, the California Public Employees' Retirement System and the California State Teachers' Retirement System - more commonly known as CalPERS and CalSTRS - will draw $298,973,000 in damages: about $261 million to CalPERS and $19.5 million plus interest to CalSTRS, with a share of the remainder going to the attorney general's office for fees.
"JP Morgan Chase profited by giving California's pension funds incomplete information about mortgage investments," Attorney General Kamala Harris said in a statement. "This settlement returns the money to California's pension funds that JP Morgan wrongfully took from them."
The settlement "helps bring closure and justice in this matter for those who were harmed and holds JPMorgan accountable for its actions," CalPERS investment committee chair Henry Jones said in a statement.
When selling securities to the massive retirement funds, JPMorgan omitted information about the quality of the mortgages the investment products contained, according to Harris's office. That echoed a broader theme of JPMorgan misleading investors by packaging risky mortgages into financial instruments they then touted as sound investments.
"JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm's behavior," U.S. Attorney General Eric Holder said in a press release accompanying the full $13 billion settlement. "The size and scope of this resolution should send a clear signal that the Justice Department's financial fraud investigations are far from over."
PHOTO: The CALPERS building in downtown Sacramento on Tuesday, November 8, 2005. The Sacramento Bee/Jay Mather.