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The SEC Steps Up

According to the SEC, "In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission today charged J.P. Morgan Securities LLC and Credit Suisse Securities (USA) with misleading investors in offerings of residential mortgage-backed securities (RMBS). The firms agreed to settlements in which they will pay more than $400 million combined.."

What's interesting is that this represents a marked increase in the amount of money firms are required to pay, given the size of the estimated damages. According to the SEC, "J.P. Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. J.P. Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million...J.P. Morgan has agreed to pay $296.9 million to settle the SEC's charges."

"Credit Suisse ..made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to Credit Suisse's practices concerning first payment defaults," and "has agreed to pay $120 million to settle the SEC's charges."

This is a significant differential. We calculated the total loss using proprietary Fully Adjusted Return® (FAR) Methodology. The Fully Adjusted Return® Methodology is trade secret protected and proprietary, so we have not provided full detail, but estimate that the total loss consists of the following:
a. Monetary losses.
b. Opportunity costs.
c. Transaction Related Social Returns (positive and negative).

The SEC's calculations come closer to our FAR ® calculations than any we have seen. It looks like the Agency is paying attention to our comments, specifically our Aug 13, 2012 "Friend of the Court" brief filed in a case currently pending before the United States Court of Appeals for the Second Circuit.

They just refuse to actually speak with us about the exact nature of the FAR ® calculations.

Until they do, it is likely they will continue to underestimate damages. 

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