The agreement settled both “actual and potential” civil claims against the company brought by five federal agencies and several state attorneys general.
WASHINGTON — A public interest group is suing the Department of Justice and Attorney General Eric Holder over the agency’s recent record-busting settlement with JPMorgan Chase for the bank’s fraudulent conduct leading up to the 2007-08 bursting of the housing bubble and subsequent meltdown of the financial industry.
Better Markets, a watchdog group based here, alleges that the Justice Department broke both federal law and constitutional mandate when it agreed to and finalized the $13 billion settlement in November. The agreement process, reportedly decided upon personally by Holder and JPMorgan CEO Jamie Dimon, included no judicial oversight, despite what critics say are multiple statutory obligations to do so.
“There are certain statutes regarding certain violations of law that expressly state that the Department of Justice must seek court approval, and then there are others where it’s silent,” Dennis Kelleher, the head of Better Markets, told MintPress while announcing the lawsuit on Monday.
“I have no doubt the Department of Justice is going to claim that they have the unilateral, unreviewable, unlimited right to determine when or when not to go to court … But in this case, given the gravity of the matter and unprecedented consequences, the Department of Justice simply cannot, under the Constitution and under the statutes we identify, have that unilateral right and unlimited power.”
Better Markets is urging the court to rule that the settlement is illegal and to halt the Justice Department from enforcing the agreement until its details have been approved by a court. The group also wants that review process to include the collection of new information about JPMorgan’s violations – and for those details to be made public.
A central law highlighted in the litigation is the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. That legislation, passed in the aftermath of that decade’s savings-and-loan scandals, allows the government to impose civil penalties for institutional financial fraud.
November’s settlement with JPMorgan included a FIRREA fine of $2 billion for its actions in the context of the subprime mortgage crisis, a penalty said to be 12,000 times larger than the next largest FIRREA levy. Yet Kelleher also notes that FIRREA specifies that, after an attorney-general file a fraud case, a court needs to “assess and determine” the size and form of any subsequent fine.
“We’re not saying the Department of Justice can’t come to a settlement,” Kelleher said. “We’re saying they can’t finalize that settlement without submitting it to court without an independent judicial review and approval.”
A private contract
Experts now suggest that the total financial cost of the 2007-08 financial crisis could be $13 trillion or more, perhaps costing some $120,000 for every American.
While neither JPMorgan Chase nor the banks that it has since purchased were solely responsible for this damage, the institution was the largest Wall Street player and had an irrefutably central impact on the overall situation. When the settlement was announced in mid-November, Attorney General Holder stated, “Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown.”
In line with that centrality, the settlement came with a record topline agreement by the bank to pay $13 billion, a figure 300 percent larger than the next-largest such settlement. Beyond the FIRREA fine, much of the settlement money will go to various states and federal agencies, in part to assist struggling homeowners.
The agreement settled both “actual and potential” civil claims against the company brought by five federal agencies and several state attorneys general, thus offering broad immunity for years to come. Officials have suggested that criminal charges could still be brought in the case, but many observers say this is unlikely.
It is important to note that the Justice Department is indeed empowered to arrive at and finalize a broad range of unilateral out-of-court settlements on its own. Supporters say this is particularly important for smaller-scale cases – say, involving a federal worker in a vehicle accident. A Justice Department spokeswoman, Ellen Canale, told MintPress that the department “has confidence that the settlement reached with JPMorgan Chase complies with the law.” (JPMorgan is not commenting on the lawsuit.)
But Better Markets says that the scope and impact of the wrongs alleged to have been committed by JPMorgan mandates oversight by the judiciary. Anything less, the group suggests, is an unconstitutional power grab by the executive branch of government.
“[T]he Executive Branch, through [the Justice Department], acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions,” the complaint, seen by MintPress, states. “The Executive Branch simply does not have the unilateral power to authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.”
While these alleged judicial and even constitutional infractions may strike some as merely procedural, the ramifications of this lack of judicial oversight are potentially vast. Because the details were never given a public airing in court, remarkably little information about JPMorgan’s admitted wrongdoing was made public as part of the settlement, despite the release of an 11-page “Statement of Facts” by the Justice Department.
“We would certainly welcome Better Markets’ effort to bring judicial review to this opaque settlement,” Bartlett Naylor, a financial policy advocate with Public Citizen, told MintPress. “This is the biggest settlement for unlawful activity by a corporation to date, and yet we don’t know precisely what the infractions were or what the profits from these infractions were. Hence, we have no way to judge whether $13 billion is adequate.”
Indeed, the lawsuit claims that the “contract” between the Justice Department and JPMorgan “appears to have been written more to conceal than to reveal,” noting that the agreement “disclosed no meaningful facts.”
Beyond a complete lack of information on the total losses and profits, as Naylor points out, Better Markets suggests that public knowledge is required on a suite of additional details.
These include data on any bonuses received from improper or illegal actions and who within the company carried out these activities. The fact that the latter information has never been made public is particularly infuriating for many critics. In addition, advocacy groups are wondering about the scope of the investigations undertaken by the Justice Department and the company that led to the settlement agreement. There are also questions about why there is the agreement does not direct JPMorgan to substantively change its business practices.
At a press conference this week, Kelleher noted that there were multiple reasons for both the company and the agency to want to keep such details secret. He says that the Justice Department in particular wants the public to focus on the record-breaking size of the settlement, rather than on its related details.
“The American people have a right to know these basic facts and judge for themselves whether the Department of Justice was really tough and punished the biggest Wall Street bank, as it claims, or if this is just one more of the same examples where the department has failed miserably to enforce the law on Wall Street,” he said.
“The Justice Department has a self-interest, if not a motive, for making sure that their conduct cannot be independently evaluated. The department has been under intense and persistent criticism for years now for its complete and utter failure to enforce the law on Wall Street.”
Indeed, more than a half-decade since the financial collapse, the Justice Department has made remarkably little public headway on criminal cases against Wall Street executives or companies (the JPMorgan agreement is a civil settlement). This evident failure has led to criticisms that the federal government is enforcing a de facto judicial double standard.
Holder appeared to publicly admit as much last year, noting in testimony to a Senate committee that federal prosecutors have to take into account the “negative impact” that such prosecutions could have on national and global markets. In an excoriating response, Sen. Chuck Grassley criticized Holder for recognizing that “big banks and their senior executives have a get-out-of-jail-free card.”
In an attempt to push back on such criticism, the Justice Department is now reportedly preparing a series of actions against the biggest Wall Street players for their conduct in the lead-up to the financial crisis. Kelleher says that recent media statements by Justice Department officials appear to suggest that the agency is hoping to use the JPMorgan Chase settlement as a model for these upcoming actions.
“This is actually much more important than this settlement,” Kelleher said. “This model – where we go into the back room and cut a secret deal, where we take a bundle of money, give immunity and tell the American people nothing, we don’t go to court – they call that their template for settling the next couple biggest too-big-to-fail banks on Wall Street.”