Attention everyone who's suing or planning to sue JPMorgan Chase, Bear Stearns, or Bear's onetime mortgage unit EMC over
mortgage-backed securities gone bad: Those indefatigable bond
insurers are busy amassing whistleblower evidence for you. Last
Friday, Patterson Belknap Webb & Tyler -- which represents the
monolines Syncora, Assured Guaranty, and Ambac in fraud and
breach-of-contract suits stemming from EMC mortgages -- began
deposing witnesses from outside companies that evaluated the
underlying loans in Bear's mortgage-backed offerings. (The Nov.
18 amended complaint in Assured's Manhattan federal court case
against EMC and JPMorgan outlines the whistleblower assertions
Patterson has come up with.)
The first deposition was of a former employee of Watterson
Prime, a contractor that re-underwrote mortgages in EMC
securitizations. The employee has claimed that Watterson simply
rubber-stamped the loans; even mortgages that the contractor
rejected, she has said, were nevertheless placed in MBS loan
pools. Assured and the other monolines argue, of course, that
they were deceived about the supposedly independent review of
the underlying mortgage loan pools in the securities they agreed
to insure. Whistleblower deposition testimony could be powerful
evidence to support their arguments.
We only know about the whistleblower depositions because of
a letter JPMorgan's lawyers at Greenberg Traurig sent to
Manhattan State Supreme Court Justice Charles Ramos, who is
overseeing the Ambac case in state court, and to U.S. District
Judge Paul Crotty, who's presiding over Syncora's Manhattan
federal court case against EMC. (JPMorgan isn't a defendant in
that action.) The Jan. 18 letter identified the Watterson
confidential witness by name, accused Patterson Belknap of
"ambush litigation tactics," and asked the judges to order
Patterson to turn over a signed affidavit from her in advance of
the Jan. 20 deposition. Greenberg also asked for affidavits from
three other whistleblowers whose depositions have been
scheduled. Despite a Jan. 19 Patterson letter claiming privilege
for the whistleblower affidavits it has obtained, the monolines
were ordered to turn over the witness statements.
A financial journalist named Teri Buhl got wind of the scuffle
over the whistleblower affidavits and published a post accusing
JPMorgan and Greenberg Traurig of attempting to intimidate the monolines' whistleblower witnesses. The bank's lawyers promptly
responded with a letter to Crotty, complaining that Patterson
Belknap was leaking non-public information. "We do object to
plaintiff's counsel's repeated use of reporters such as this one
to generate articles like this," the letter said. "We would
appreciate the court directing plaintiff's counsel to refrain
from this activity in the future."
Patterson countered Greenberg's assertion in a fiery Jan. 23
letter to Crotty. (All of the correspondence in the flap is
here.) "[EMC's] letter falsely asserts that our firm disclosed
non-public information to the press," the Patterson response
said. "That simply is not true." Patterson pointed out that all
of the factual information in Buhl's post came from
public-record documents -- in a flap EMC itself precipitated
when it disclosed the Watterson witness's name in its demand for
her affidavit.
Patterson also took the opportunity to needle EMC about the
whistleblowers' depositions: "EMC seeks to divert attention from
the fact that the testimony the whistleblower gave
on Friday (as well as testimony offered by a Georgia law
enforcement officer on Saturday) confirmed the statements in the
affidavits that EMC knowingly misrepresented in its due
diligence process, which was fundamentally and deliberately
deficient," the Jan. 23 letter said.
Crotty -- who still hasn't issued the loss-causation summary
judgment ruling that was expected by the end of last month --
denied Greenberg's request for a gag order on Tuesday, writing
that "as to talking to the press about public judicial events,
the parties should be guided by the code of conduct and related
opinion on ethics, concerning good behavior of attorneys."
I've reported that MBS suits against JPMorgan are suddenly
in vogue. That trend continued this week with the 256-page complaint John Hancock's lawyers at Grant & Eisenhofer filed in
Manhattan State Supreme Court. The public record is already full
of grist for the plaintiffs' lawyers filing these suits, but
deposition testimony from underwriting whistleblowers is going
to be quite a significant addition to the record. Once again,
the monolines are trailblazing for MBS investors.
I left a phone message for JPMorgan counsel Richard Edlin of
Greenberg and sent an email request for comment to a bank
spokesperson. Neither got back to me.
(Reporting by Alison Frankel)
Follow Alison on Twitter: @AlisonFrankel
Follow us on Twitter: @ReutersLegal