Federal Home Loan Bank of Pittsburgh v. J.P. Morgan Securities LLC, GD09-016892 | REDACTED Motion to Compel and Redacted Exhibits

IN THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA

Federal Home Loan Bank of Pittsburgh, Plaintiff, V. J.P. Morgan Securities LLC, J.P. Morgan Mortgage Acquisition Corp., J.P. Morgan Mortgage Acceptance Corporation I, Chase Home Finance L.L.C., Chase Mortgage Finance Corporation, JPMorgan Chase & Co., Moody's Corporation, Moody's Investors Service, Inc., The McGraw-Hill Companies, Inc., and Fitch, Inc., Defendants. Federal Home Loan Bank of Pittsburgh, Plaintiff, V. J.P. Morgan Securities LLC, JPMorgan Chase & Co., Moody's Corporation, Moody's Investors Service, Inc., and The McGraw-Hill Companies, Inc., Defendants. EXCERPT: 15. All of the JPMorgan trusts at issue here also contained many "statedincome" loans, and Pittsburgh FHLB has discovered facts which show significant concern on the part of JPMorgan employees about material misrepresentations regarding borrowers' reported income levels, and about the performance of certain stated income loan programs. The Statement of Facts does not provide any details about the originator, the vendor, the loan program, or the employees involved. The draft complaint may do so. And even if those facts relate to a different trust or a different program, the knowledge of the employees would certainly be relevant to Pittsburgh FHLB's claim of fraud, and would support Pittsburgh FHLB's position that JPMorgan's conduct with respect to the trusts at issue in this case was not unique, but rather was part of a pattern of fraudulent conduct, involving its entire mortgage platform and related companies, which should be deterred by an award of punitive damages. 16. The lack of specificity in the Statement of Facts has led others to question what it was the DOJ actually found in its investigation that caused JPMorgan to pay $13 billion. Gretchen Morgenson, writing in the New York Times on November 23, 2013 found the Statement of Facts unsatisfying:

Eager to see what the Justice investigation had found, I consulted the statement of facts that accompanied the settlement and that JPMorgan had to acknowledge. There, I reckoned, would be some juicy, new evidence of the bank's mortgage misdeeds "uncovered" by assiduous investigators armed with subpoena power and other government might.

Perusing the 11-page document, I quickly saw that I'd reckoned wrong. Much of it was the same-old-same-old, a not-very-lively description of a corrupted Wall Street mortgage factory, based largely on some facts that have been in the public domain for years.

In other words, although it took the Justice Department more than five years to pursue a major bank for its role in the mortgage mania, the investigation seems to have unearthed material that, by and large, could have been dug up with a spoon.

(Ex. A, attached.) 17. Given the DOJ's desire not to have the draft complaint become public until after the settlement was reached, and given JPMorgan's apparent deep desire to prevent it from ever seeing the light of day, it would not be at all surprising if the draft complaint is a much more detailed account of JPMorgan's fraudulent conduct, and as such, far more enlightening than the Statement of Facts. [...] APPEARANCES: For Plaintiff, FHLB: Janet C. Evans, Esq. Randall Tietjen, Esq. Justin T. Romano, Esq. William H. Manning, Esq. Damien A. Riehl, Esq. For Defendant, JPMorgan: Dorothy J. Spenner, Esq. Tom Paskowitz, Esq. Jeremy Stamelman, Esq. Deborah A. Little, Esq. Samuel W. Braver, Esq. For Defendant, Fitch: Christopher L. Filburn, Esq. Julia Mason Wood, Esq. Elizabeth F. Collura, Esq. For Defendant, McGraw-Hill: Tammy L. Roy, Esq. Jacqueline A. Koscelnik, Esq. For Defendant, Moody's: James Regan, Esq. James J. Coster, Esq. For Defendant, Countrywide: John J. Falvey, Jr., Esq. Sharon L. Rusnak, Esq. Aleksandra Sasha Williams, Esq. P R O C E E D I N G (12:24 p.m., Counsel present before the Court.) - - - THE COURT: I do believe I brought another file, so I will be back, because we're not dealing with whether silicon can cause cancer. (Discussion held off the record.) (Brief pause in proceedings.) (12:28 p.m.) THE COURT: Okay. We'll try again. Be seated. Now, we're starting with the rating agency's motion, and there's some 10,000 documents; is that right? MS. WOOD: Yes, Your Honor. THE COURT: Okay. And they're all protected -- they're all SARs reports? MS. WOOD: They're all -- they are on a log that Plaintiff has prepared of all documents that are subject to the bank examiner privilege. THE COURT: Okay. That's what I meant. Yes, I'm sorry. MS. WOOD: Yes. THE COURT: So the Plaintiffs want to take the position that there's no cause shown for any There are some letters rogatory, I think, both from Countrywide and the rating agencies. MS. ROY: Standard & Poor's, yes. MS. EVANS: So if we could proceed, I'd like to talk through the couple of motions to compel that were on today. THE COURT: Okay. MS. EVANS: Are you all right with that? Okay. This is the original that I am filing on the motion to compel for receipt of documents produced to the Department of Justice. (Counsel and the Court exchange documents.) This is against JPMorgan. In August, Your Honor, of this year, JPMorgan announced that, in an SEC filing, that the Department of Justice was conducting civil and criminal investigations relating to its MBS matters activities. Appended to that motion at Tab B is Page 204 of that disclosure, which discloses -- JPMorgan discloses that there are parallel investigations. This is up on the right-hand top. THE COURT: Okay. And what's the discovery issue? MS. EVANS: What we would like is all of the documents that were produced in connection with the DOJ investigation. In September of this year, the Department of Justice indicated that it was ready to serve a complaint. My understanding, from public information -- whether it's accurate or not -- is the complaint did go to JPMorgan. It's not public. We don't have it. JPMorgan entered into settlement negotiations right away -- it's been in the newspaper -- for about $11 billion, is the number that was discussed. The last I know, only from public statements or publicly available information, is that Jamie Dimon was involved in the talks and they are stalled on some points. THE COURT: Okay. So, what are you asking for? MS. EVANS: The documents that were provided to the Department of Justice in connection with the civil and criminal investigation into the mortgage backed securities. THE COURT: Okay. MS. EVANS: It's the same time frame, too, Your Honor, and the allegations reported in the press are the same. [...] MS. EVANS: It goes on to say in the Wall Street Journal article that, "...among the documents is an e-mail from a bank employee warning her superiors that they were vastly overstating the quality of the mortgages being bundled into the securities." MR. PASKOWITZ: Again, hearsay. MS. EVANS: Pardon me. I was kind enough not to interrupt you. I appreciate the courtesy. What we have developed in our case is exactly -- this is exactly it. This is -- they are looking into the RMBS business, which means all loans; prime, subprime. THE COURT: So, what are you asking with respect to the two people? MS. EVANS: What we would like is the documents that they produced pursuant to the subpoenas from the Department of Justice. Now -- THE COURT: Well, what's that have to do with two people? MS. EVANS: That should -- if it does not include the e-mail, then we do want the identity of the individual who warned her supervisor that they were vastly overstating the quality of the mortgages they bundled into securities. THE COURT: That you believe JPMorgan can identify that employee? MS. EVANS: Yeah, I do. This has been a two-year investigation. It started out from the Obama administration. We have known that there have been these subpoenas, and now the Justice Department has decided that it is doing both civil and criminal investigation into its entire MBS activities. That's JPMorgan's own disclosure. It's not just to subprime or Alt A or different kinds of securities. Importantly, I don't know what Ms. Dailey has to do -- Ms. Dailey. Our Special Master; not Ms. Dailey. MS. SPENNER: Ms. Dodge. MS. EVANS: Dodge. She was deciding whether they were using any more search terms. They don't have to do anything. All they have had to do is download the documents, whatever they were, that they gave to the Department of Justice and deliver them to us. That's very similar to what S&P did. We would simply agree, as we did in the S&P DOJ documents, that we will treat them highly confidential so you don't have to go through and delay. We are getting towards the end. I am very excited about that. THE COURT: Now, there is a -- you believe there's a draft of a complaint that JPMorgan has? MS. EVANS: I do. All I can tell you is I read it in publications. MR. PASKOWITZ: That's our main problem with this whole motion, is that what FHLB is currently asking us is to vastly expand the record in this case when we're a couple months away from the close of discovery, based on a newspaper article. THE COURT: Well, I think they could ask you, if there is a draft of a complaint, to turn that over. MR. PASKOWITZ: Whether there is or is not, I do not know. THE COURT: If there is. MR. PASKOWITZ: My concern, I would put on the record, my concern there in the S&P context, whether there was a filed complaint that the government was willing to stand behind, I think you have a very different situation than a draft complaint that they may have turned over to JPMorgan as part of a negotiation. I think there's a very different factual record there that exists and different implications that can arise. THE COURT: Okay. I'm going to, for the time being, let you get any drafts of a complaint and the name of that employee, if they have it. MR. PASKOWITZ: I -- okay. I think we have to sort of explore whether there's any issues turning that over from the government. I don't know if there are or are not. If a complaint has been shared, whether there are any concerns from the government's standpoint as to turning that over, I just don't know sitting here today. THE COURT: Well, you have the draft? MR. PASKOWITZ: I do not know that we do. MS. SPENNER: Says the Wall Street Journal. I have no idea. THE COURT: The claim is, you have the draft. MR. PASKOWITZ: The -- MS. SPENNER: Their claim. THE COURT: Okay. So that, to the extent that you have it, you turn it over. MS. SPENNER: I can -- MS. EVANS: And the name of the employee? MS. SPENNER: I can tell you right now that, because we have looked into this, that", THE COURT: Well, you'll just answer it. MS. SPENNER: Say that -- say exactly what I just said? THE COURT: In your answer. MR. PASKOWITZ: In our answer. THE COURT: 'Tell us who the employee is referred to in the Wall Street Journal.' sm. 9 MS. EVANS: May I request the information in ten days, Your Honor? MR. PASKOWITZ: The complaint, again, because we'll have to explore this issue -- THE COURT: I'll give you twenty days. MR. PASKOWITZ: Thank you. MS. EVANS: Thank you, Your Honor. The next motion, that is kind of a double motion, this is for William King's documents produced in another piece of litigation, and that is in the FHFA case against JPMorgan. He is a named Defendant. His name is William King. I do want to share with you and tell you something of who he is. (Indicating) Here's -- here is an organizational chart [...]