The non-profit Better Markets is suing JPMorgan Chase (JPM) challenging what they charge is “the historic and unprecedented $13 billion settlement agreement between the U.S. Department of Justice and JP Morgan Chase.”
Better Markets charges that the DOJ violated the U.S. Constitution and U.S. laws by using a mere contractual agreement to resolve claims of historic importance without subjecting the agreement to independent judicial review. (Five details of the allegation below.)
The settlement was finalized back in November 2013, after the U.S. Financial Fraud Task Force investigated JPMorgan’s practices.
As part of the settlement agreement, the banking giant was required to acknowledge it made serious misrepresentations about residential mortgage-backed security transactions, and will have to provide relief to underwater homeowners, according to a statement released by the Justice Department.
"The Wall Street bailouts were bad enough, but now taxpayers are being forced to accept a secretive backroom deal that may well have been another sweetheart deal," said Dennis Kelleher, CEO of Better Markets, a reform group founded in 2010. "The Justice Department cannot act as prosecutor, jury and judge and extract $13 billion in exchange for blanket civil immunity to the largest, richest, most politically connected bank on Wall Street."
“Better Markets charges that the DOJ acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any check on its authority or actions, even though the amount is the largest in the 237-year history of the United States,” the group alleges.
Further, they argue, because the DOJ has declared its intention to use the agreement as a template in future similar cases, “it is imperative that the DOJ’s unlawful and secretive approach in the settlement process be subjected to judicial review.”
Better Markets is asking the court to declare the agreement unlawful and to issue an injunction “preventing the DOJ from reinstating or enforcing the agreement until the DOJ submits it to a court so that the court may review all the facts and circumstances, enlarge the record supporting the agreement as it deems necessary, and determine whether the Agreement meets the applicable standard of review.”
Better Markets argues that for years before the financial crisis of 2008, JP Morgan Chase engaged in pervasive fraud in the packaging and sale of thousands of mortgage-backed securities to investors.
Those securities were stuffed with subprime loans that failed to meet applicable underwriting criteria, Better Markets charges, and employees, managers, and potentially high-level executives of JP Morgan Chase knew that the securities were riddled with toxic loans. Even so, they allegedly concealed the truth from investors when they marketed and sold the securities.
The agreement was struck under extraordinary circumstances, some of which Better Markets takes issue with and alleges that these five examples show unfair treatment to the big bank:
1: HISTORIC CLAIMS
The Agreement resolved claims of pervasive fraud that contributed to the worst financial crash since 1929 and the worst economy since the Great Depression of the 1930s.
2: LARGEST AMOUNT EVER
The settlement amount was the largest in U.S. history from any single entity by more than 300%. But not enough is trickling down to the little guy.
3: HIGH-LEVEL NEGOTIATORS
The Attorney General and other senior DOJ political appointees negotiated directly and entirely in secret with the CEO of JP Morgan Chase, someone who was considered a possible Treasury Secretary just a few years ago.
4: $10 BILLION PHONE CALL
The cellphone of DOJ’s third-highest ranking official rang with the “familiar” phone number of JP Morgan Chase’s CEO, who called to offer billions of dollars to stop DOJ from holding a press conference and filing a lawsuit in just a few hours. The call worked, and the press conference and lawsuit were both called off.
5: UNPRECEDENTED AGREEMENT
DOJ gave complete civil immunity to JP Morgan Chase for defrauding thousands in exchange for $13 billion, via a contract that was negotiated and finalized in secret without any review or approval by a federal court.