Monday, February 10, 2014

Lawsuit Calls Government's Sweetheart Deal With JP Morgan 'Unlawful'

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ON FEBRUARY 10, 2014 AT 4:19 PM

Justice Department (DOJ) broke the law when it settled mortgage finance
market fraud allegations against JP Morgan in a headline-grabbing legal
settlement last year, according to a lawsuit filed Monday by the Wall Street reform advocacy group Better Markets.

By granting the bank immunity from further civil suits, Better Markets President Dennis Kelleher said,
the DOJ acted “as prosecutor, jury and judge…to the largest, richest,
most politically-connected bank on Wall Street.” Kelleher’s group wants
judicial review of the facts underlying the settlement to ensure that JP
Morgan pays a penalty that is proportional to the bank’s misdeeds, and
says that the DOJ’s failure to seek a judge’s independent approval
violates the separation of powers required by the Constitution.

deal between JP Morgan and the DOJ stemmed from allegations that the
bank had knowingly misrepresented the quality of mortgage-backed
securities that it sold. Since the deal’s on-paper costs evaporate under
scrutiny — JPM can write almost the entire thing down on its taxes,
costing less than half of what the DOJ claimed — the settlement has
drawn a great deal of criticism since it was announced last fall. Better
Markets echoed those criticisms in its statement on the lawsuit,
accusing the government of “using the large dollar amount to blind
everyone to the reality that they have disclosed no meaningful facts
about what JP Morgan Chase did.”

That alleged lack of factual disclosure is the central target of the group’s ire. One of the few bright spots in
the JP Morgan deal was supposed to be that the bank acknowledged it had
done what the government accused it of doing. Since regulators started
to seek admissions of wrongdoing in such settlements last year after
years of activist and lawmaker frustration with deals that allowed firms
to “neither admit nor deny” alleged misdeeds, the news that JP Morgan
had formally agreed to the DOJ’s version of events seemed exciting. But
the deal didn’t include a full admission of wrongdoing. Instead, JP
Morgan agreed to a “statement of facts” of the case. As Bloomberg View’s
Jonathan Weil pointed out in November, that statement was carefully worded to avoid providing any useful information to
clients, private investors, or homeowners wronged by JP Morgan. “The
bank didn’t admit to violating any laws” or “identify any specific
people or bonds,” Weil wrote. “For that matter, the Justice Department
gave no indication that it would be filing court papers accusing JP
Morgan of violating any laws, so its portion of the deal won’t need a
judge’s approval.”

Better Markets’ suit is designed to reverse that last failure and force judicial review of the settlement and of the case the DOJ had built prior to winning the bank’s surrender. The bank appears to fear that level of scrutiny. As Better Markets notes in a fact sheet on
the lawsuit, the DOJ was reportedly on the verge of filing official
charges and taking JP Morgan to court when its CEO Jamie Dimon
personally called a top DOJ official four hours before charged would be announced to raise the bank’s settlement offer and keep the matter out of court.

lawsuit could also have implications for the financial industry as a
whole. The JP Morgan deal is supposed to be a template for other Wall
Street settlements, meaning that its failures and loopholes would be replicated across the whole industry. Even though bank officials publicly complain about the deal, the reality is that it was a very good resolution to JP Morgan’s problems. If it is derailed, the financial industry will lose its best escape route from real accountability for the multi-trillion-dollar financial crisis.

Lawsuit Calls Government's Sweetheart Deal With JP Morgan 'Unlawful'

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