A lawsuit filed Monday in Federal court in Washington, DC challenges the legality of a $13 billion settlement between the Justice Department and financial services giant JPMorgan Chase which, last November, gave the bank blanket immunity from civil prosecution by the government for its role in the sale of questionable mortgage securities in advance of the financial crisis.
Better Markets, the DC-based non-profit dedicated to increasing transparency in the financial markets that filed the lawsuit, claims the Justice Department violated the law by failing to submit the record-breaking settlement to a judge for approval.
A DOJ spokesperson told The Fiscal Times, "The Department is confident that the settlement reached with JP Morgan Chase complies with the law."
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Dennis Kelleher, president and CEO of Better Markets, said the arrangement between the Justice Department and the bank was a “secret, back-room deal” resulting in “yet another sweetheart deal for yet another Wall Street bank.”
Despite the rhetoric, Kelleher’s claim is not so much that the settlement was inadequate as that nobody has the information necessary to make that judgment in the first place. The documents released by DOJ at the time point to what appears to be widespread misconduct by individuals creating mortgage-backed securities at JPMorgan Chase, as well as Bear Stearns and Washington Mutual, two failed financial institutions that JPMorgan bought during the financial crisis. However, they give no sense of how much money the bank made through the sale of those securities, how much damage they inflicted on the economy as a whole, and who was responsible.
Considering the long-term damage the financial crisis did to the U.S. economy, Kelleher said, “The American people have a right to know the basic facts.”
While he makes a compelling case that the public was ill-served by allowing widespread violations of the law by the country’s largest bank to be settled in secret, Kelleher, a former aide to Senate Democratic leadership and a trial attorney with the law firm Skadden Arps, is likely facing an uphill climb.
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When the government files a case in court, a settlement ending prosecution is normally reviewed by a judge, and many of the facts of the case become a matter of public record. However last year, a personal phone call from JPMorgan CEO Jamie Dimon, in which the executive indicated openness to a deal, is said to have stopped the Justice Department from filing suit against the bank. That meant that when a settlement was reached, there was no court with the authority to demand it be reviewed.
The Department of Justice regularly makes decisions about whether or not to go to court, and not all of its reasons are made public. Much of the Better Markets court filing reads like a plea that, given the historic size of the settlement and the impact the underlying activity had on the economy as a whole, the information obtained by DOJ ought to be made public – where “ought” refers more to moral law than actual legal statute.
However, at least part of the settlement covered the bank’s alleged violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The Better Markets suit points out that the law specifically states that FIRREA violators “shall be subject to a civil penalty in an amount assessed by the court in a civil action under this section,” which appears to give Better Markets at least one potential path to victory.
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However, the group will also have to convince a judge that it has the standing to bring this suit against DOJ, a case Kelleher made by insisting that the organization had suffered “concrete and demonstrable injury” from the decision. The lawsuit says that, among other things, the settlement hurts the group by “undermining its mission objectives” and interfering with its ability to conduct its work “by forcing it to devote resources to counteracting the harmful effects of the DOJ’s unlawful settlement process.”
Whether a judge will agree that the terms of the settlement left Better Markets no alternative but to spend its resources on a legal challenge is, of course, an open question.
The Department of Justice and JPMorgan Chase did not immediately respond to requests for comment on this story.
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