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January 31, 2013

SEC Says Circuit Court Ruling Will Not Disqualify J.P. Morgan from Regulation A Exemptions

By John Filar Atwood

J.P. Morgan Securities and certain other defendants are not disqualified from exemptions available under Regulation A despite the entry of a judgment by the D.C. Circuit Court that enjoins them from committing violations of Securities Act Sections 17(a)(2) and (a)(3) in the offer or sale of any security. The staff advised the company of its decision in a no-action letter issued on January 8, the same day as the entry of the final judgment (J.P. Morgan Securities LLC, SEC No-Action Letters Ind. & Summaries (WSB) #0128201336).

The final judgment related to the alleged conduct of J.P. Morgan and the other defendants in connection with certain offerings of residential mortgage-backed securities. J.P. Morgan and the other defendants consented to the entry of the judgment without admitting or denying the facts of the case. The judgment required the defendants to pay disgorgement in the amount of $177.7 million, prejudgment interest of $38.8 million, and a civil monetary penalty of $84.3 million.

Counsel for J.P. Morgan wrote to the SEC based on its understanding that the final judgment might disqualify it, affiliated entities and other issuers from relying on certain exemptions under Regulation A of Securities Act Rule 505. The defendants were concerned that, should they or any of their affiliated entities be deemed to be a promoter, or the underwriter of the securities of an"issuer" for the purposes of Securities Act Rule 262(b)(2), the defendants, their issuer affiliates, and other issuers with which they are associated that rely on Regulation A offering exemptions when issuing securities would be prohibited from doing so.

In seeking to waive the disqualification, J.P. Morgan noted that the conduct addressed in the final judgment does not pertain to offerings under Regulations A or D and that the defendants have taken steps to address the conduct alleged in the complaint. In addition, the defendants will take actions reasonably designed to prevent potential violations of Section 17(a)(2) and (a)(3) in connection with the disclosure and offer and sale of residential mortgage-backed securities.

Attorneys: Gail S. Ennis (Wilmer Cutler Pickering Hale and Dorr LLP) for the requesting parties. Gerald J. Laporte for the Securities and Exchange Commission.

Companies: J.P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Steams Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; SACO I, Inc.; J.P. Morgan Acceptance Corporation I

RegulatoryActivity: SecuritiesOfferings

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