Wells Fargo (NYSE: WFC), the nation’s fourth-largest bank, has sued JPMorgan Chase (NYSE: JPM), the nation’s largest bank, to recover losses for investors in a $481 million commercial real estate loan that was allegedly made with an inflated financial metric.
Reuters reports JPMorgan made the loan to fund a $522 million purchase by the real estate development firm Chetrit Group in 2019 of a 43-property multifamily portfolio encompassing 10 states and 8,671 apartments. The borrower defaulted in 2022 and continues to owe more than $285 million.
Wells Fargo’s lawsuit alleged both JPMorgan and Chetrit knew the seller overstated the properties’ historical net operating income by 25% but went ahead with the loan because it would be sold to investors who were unaware of this underlying problem. Wells Fargo served as the investors’ trustee and claimed that investors lost tens of millions of dollars.
“JPM had an obligation to engage in due inquiry to determine the scope of the fraudulent reporting” after learning about the inflated metric, Wells Fargo said. “Instead, JPM plowed ahead as if nothing unusual had happened without even bothering to correct known errors in the numbers.”
Wells Fargo is seeking to have JPMorgan either repurchase the loan, less amounts the trust received from sales of underlying properties, or cover damages created by a breach of contract.
JPMorgan and the Chetrit Group did not comment publicly on the lawsuit.
