Lawsuit alleges JPMorgan knowingly sold off a risky real estate loan deal that later defaulted
Wells Fargo has filed a lawsuit against JPMorgan Chase, alleging that the bank misrepresented financial data on a $481 million commercial real estate loan, leading to significant investor losses.
In 2019, JPMorgan issued the $481 million loan to the Chetrit Group, a private Manhattan real estate development firm, to finance its $522 million purchase of 43 multifamily properties spanning 8,671 apartments across 10 US states. According to Wells Fargo’s lawsuit, the loan was based on inflated financials, with the seller allegedly overstating the properties' net operating income by 25%.
Wells Fargo claimed JPMorgan was aware of these discrepancies but chose to move forward with the loan anyway, allegedly because it intended to sell portions of the debt to unsuspecting investors. When the borrower defaulted in 2022, more than $285 million remained unpaid, leading to significant losses for investors.
The lawsuit, filed in federal court in Manhattan, accuses JPMorgan of failing to conduct proper due diligence before originating the loan, Reuters reported. Wells Fargo argued that JPMorgan had a duty to investigate and correct the financial discrepancies before structuring the loan for investors.
"JPM had an obligation to engage in due inquiry to determine the scope of the fraudulent reporting," Wells Fargo stated in the complaint. "Instead, JPM plowed ahead as if nothing unusual had happened, without even bothering to correct known errors in the numbers."
Wells Fargo is now seeking damages or demanding that JPMorgan repurchase the loan to cover investor losses.
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More major bank lawsuits
The lawsuit is the latest in a string of legal and regulatory issues for JPMorgan. The Consumer Financial Protection Bureau (CFPB) recently dropped a separate lawsuit against JPMorgan, Wells Fargo, and Bank of America, which had accused them of failing to protect consumers from fraud on the Zelle payment network.
The lawsuit alleged that hundreds of thousands of customers who fell victim to fraud sought assistance but were denied reimbursement. Some were even advised to contact the fraudsters directly in an attempt to recover their funds. The banks were also accused of failing to investigate fraud complaints properly or issue the legally required reimbursements for fraudulent transactions.
Wells Fargo, meanwhile, recently resolved a long-standing compliance order tied to its mortgage and auto lending practices. The Office of the Comptroller of the Currency (OCC) officially lifted a 2018 consent order related to Wells Fargo’s auto lending and mortgage operations.
The Consumer Financial Protection Bureau (CFPB) had previously enforced a similar compliance order in collaboration with the OCC. As part of the settlement, Wells Fargo was fined $1 billion, with $500 million credited to the OCC to cover penalties associated with the violations.
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