In November of this year, the Justice Department agreed to a $13 billion settlement with JP Morgan Chase. According to the government’s press release, the settlement includes a statement of facts in which J.P. Morgan acknowledged that it repeatedly told investors the mortgage loans in securities complied with underwriting guidelines, when bank employees knew on a number of occasions that the loans in question didn’t. The key issue related to mortgages that the bank was buying from other entities which were then packaged into securities met the bank’s credit standards. This, the Government alleged, it failed to do.
The deal was hailed by some media as a “landmark” and “historic” settlement. It wasn’t. Ask Alayne Fleischmann, she knows well.
Alayne is a former associate at JP Morgan Chase who was a person responsible for making sure that the mortgages purchased met credit standards. She was there in the years leading up to the financial crisis of 2007-2008. In 2006 and early 2007, she informed her supervisors that the bank was not meeting its credit standards. They ignored her. In February 2008 she was fired. Since then, she has been blackballed and moved back to Canada.Shortly after she was fired, Alayne approached the Securities and Exchange Commission revealing everything she knew. It was a lot.
In March 2013, she gave a swaorn deposition to Richard Elias, an assistant United States Attorney for the Eastern District of California. During the deposition, she explained in detail the knowing wrongdoing being engaged at J.P. Morgan. According to reports, that deposition was instrumental in advancing the $13 billion settlement.
A detailed complaint was then prepared by the United States attorney for the Eastern District and this too was used to garner the settlement. However, unlike in other settlements, the Government’s Complaint was never filed in the case, leaving the key details of the wrongdoing behind closed doors and unavailable to the public to this date.
In addition, it is still unclear as to how the Government decided on the $13 billion amount. No assessment of the losses to individuals and entities or losses to the Government has been revealed and some say none was ever done. How then could the Government know that this was a fair and reasonable settlement?
According to Fleischmann, roughly half of the loans in a multimillion-loan pool had overstated incomes. A manicurist, for example, claimed to make a six-figure salary, she recalled. She knew these kinds of loans would probably be at risk for default, putting the investors who bought these securities into jeopardy.
In addition, there were no criminal prosecutions. None. This despite the mountain of evidence gathered in the case against the bank and those who blatantly disregarded the rules. That data should be made public. The Government should be required to release exactly how it came to decide on the amount of the settlement. The deposition and the Complaint should be made public and the information used to create protocols and guidelines for how the Department of Justice should decide on settlement, litigation and criminal prosecutions and it should be required to reveal this publicly so there are no deals behind closed doors.
Jeffrey Newman represents whistleblowers. Last month, a case in which he represented the whistleblowers was settled against RehabCare for $125 million.