October 21, 2013 – It is being widely reported that the Department of Justice and JP Morgan are finalizing the details of a $13 billion settlement relating to the 2008 financial meltdown. JP Morgan has already paid close to $6 billion dating back to 2010 in other fines and penalties arising out of the 2008 financial crisis. Reports are that this settlement will encompass numerous open investigations into the bank’s fraudulent sale of toxic mortgage back securities. If consummated, this settlement will be one of the largest settlements ever involving one of the nation’s largest financial institutions. Reports are that the deal will include $9 billion in fines and provide relief to consumers totaling approximately $4 billion. It is also being reported that this deal will not insulate JP Morgan from criminal charges. While this amount seems to be substantial in the eyes of the average American, then certainly the largest penalty ever imposed on a U.S. corporation, however, it is less than half of the $21 billion profit JP Morgan recorded in 2012.
In addition, the bank previously set aside $28 billion to cover the legal costs in connection with the government investigations that have apparently led to the reported settlement. The reality is that while these settlement amounts appear to be very large, they pale in comparison to the amount of money spent by the federal government to prop up these firms, including JP Morgan, in the aftermath of the 2008 mortgage meltdown. For example, $4 billion will reportedly go to settle a suit by the Federal Housing Finance Agency against JP Morgan for knowingly making false statements and omitting material information with regard to the sale of $33 billion in worthless mortgage bonds to government-sponsored mortgage finance companies. However, that is only about two percent (2%) of the almost $2 billion in taxpayer money the government spent so far to prop up JP Morgan and others for this misconduct. The New York Times reported, “the government also prefers to settle with big companies rather than indict them, fearing that criminal charges can unnerve the broader economy.”
Attorney General Holder has been quoted as saying, “If we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” As such, the government appears to be concerned that if it levies harsh criminal sanctions against banks, including JP Morgan, that it will rattle the financial markets, and therefore, the government apparently shies away from taking such direct action to eradicate the type of misconduct that led to the 2008 collapse. Does such an approach make sense? Considering that these penalties appear to be nothing more than a slap on the wrist, when considering the damage that was caused and the profits that JP Morgan and others have made since 2008, isn’t it time that our government takes a tougher stance? Unfortunately, it appears that the financial privileged in our country are above the law. Until our government prosecutes corporations and executive who devise and carry out the fraudulent schemes, this type of misconduct will continue because it is profitable to do so. In other words, it is the cost of doing business.
So long as these companies and their executives know that they will not be held to account for fraudulent misconduct, so long as that conduct is profitable, they will continue to engage in it.
Reports are that the Justice Department’s case against JP Morgan is being bolstered in part by the involvement of a whistleblower from inside the bank who is aiding the government. The Wall Street Journal has reported that, “the cooperating person has provided information – including emails – suggesting the bank vastly overstated the quality of mortgages that were being bundled into securities and sold to investors before the financial crisis, the people said.” The Wall Street Journal also reported, “Justice Department lawyers are embolded by documents, uncovered in the course of their investigation, that point to JP Morgan knowingly peddling mortgage back securities whose underlying loans were of lesser quality than pitched to investors, according to people familiar with the investigation.” Reports of insider assistance to the government in pursuing a case against JP Morgan further highlights the critical nature that whistleblowers play in allowing our system to self-correct. The simple matter is, without the assistance of an insider such as the person being reported to be assisting the Justice Department in the JP Morgan case, the government would be at a severe disadvantage at the pre-litigation stage in leveraging any meaningful resolution.
Whistleblowers provide detailed uncontroverted evidence that otherwise would be unavailable to the government. It is believed that this insider may have filed a claim under the Federal False Claims Act, which includes a qui tam provision that enables individual citizens to bring claims on behalf of the taxpayers against companies such as JP Morgan, who are alleged to have defrauded our government. To encourage such whistleblowers to come forward, the False Claims Act includes bounty provisions that compensate whistleblowers for the courageous efforts that are necessary for someone to step forward and report powerful corporate interest, such as those in the JP Morgan case. These bounties can range anywhere between 15 and 30 percent of civil penalties and fines collected by the federal government as a result of the underlying qui tam action.
Young Law Group, P.C., represents whistleblowers in the United States and abroad, in a variety of cases, including IRS Whistleblowers, False Claims Act (Qui Tam), and SEC related fraud. For a free confidential consultation, please call Eric L. Young, Esquire at (215) 367-5151 or email to firstname.lastname@example.org.