Current Weather
The Spy FM

JPMorgan Says It Broke No Law. So Why Pay The $13 Billion?

Filed by KOSU News in Business.
November 22, 2013

State and federal regulators have hailed Tuesday’s $13 billion settlement with JPMorgan Chase & Co., over faulty mortgage assets it sold in the years leading up to the financial crisis, as a big victory for the judicial system.

But like other big settlements to emerge from the financial crisis, the deal leaves unclear just what the bank did wrong.

The government alleged that the bank and two other financial institutions it later acquired were repeatedly warned about the quality of the mortgage assets that were sold — but never did anything about it.

“The conduct JPMorgan has acknowledged, which is packaging risky home loans into securities, then selling them without disclosing their low quality to investors, that is behavior that we believe contributed to the wreckage of the financial crisis,” Tony West, associate U.S. attorney general, said this week.

The government spelled out its case in a statement of facts that JPMorgan agreed to sign. But even as the bank was acknowledging its conduct, it was also proclaiming its innocence.

“The firm has not admitted to any violations of the law,” Marianne Lake, JPMorgan’s chief financial officer, said in a conference call Tuesday.

Lake and CEO Jamie Dimon repeated that several times: No violations of the law. At the same time, the bank signed an agreement that U.S. officials say suggests a pattern of misleading investors.

So who’s right?

“We’re in an age of spin and I think the answer is, everybody is right,” says securities lawyer Jacob Frenkel. He says the statement of facts at the heart of the case is artfully worded so that both sides can walk away claiming a victory of sorts.

JPMorgan Chase, for instance, gets to settle the case and move on. But it doesn’t admit anything that might come back to haunt it later on — like in one of the private lawsuits it faces, for example.

“This language really was crafted very carefully to ensure that the closure of these cases could then be used in some other proceeding in a way that actually becomes a sword to stab JPMorgan yet again,” Frenkel says.

But there’s plenty in the statement of facts to hint at some degree of misconduct by JPMorgan. Jimmy Gurule, a former official with the Justice and Treasury departments who now teaches at Notre Dame Law School, points to one example, in which a bank official warned about the poor quality of one of the underlying mortgages in a security sold by the bank.

Her warnings, the statement says, were disregarded.

And Gurule says there are lots of examples like that. “It’s a consistent pattern that demonstrates that high-level officials at JPMorgan had knowledge that the loans they were pulling together and selling were high-risk and there were likely to be substantial defaults,” he says.

But juries are unpredictable and it’s not clear whether this evidence would have held up in a court trial. Justice Department officials clearly decided not to take the gamble.

And weighing heavily in their calculation was another big factor: As Gurule points out, the government also walked away with a huge amount of money. The record settlement generated plenty of headlines and, to the public at least, it undermines the bank’s claims of innocence.

“It’s absurd for JPMorgan to suggest that it didn’t engage in any criminal wrongdoing and yet agreed to pay the Department of Justice $13 billion,” Gurule says.

That said, the financial penalty isn’t quite as costly as it appears for the bank. For one thing, much of it is tax-deductible. The settlement also comes at a time of mounting criticism about deals like this — deals that allow financial institutions to dispose of allegations without admitting wrongdoing.

Mary Jo White, the new head of the Securities and Exchange Commission, said she wants to avoid such deals when possible. But this week’s settlement suggests they’re not going away any time soon. [Copyright 2013 NPR]

Leave a Reply

9PM to 12AM SpyLab

SpyLab

Katie Wicks is our resident international superstar DJ. She hosts SpyLab, a dance mix show on Saturday nights and co-hosts the largest weekly dance party in OKC, Robotic Wednesdays. She has had two original dance songs chart in the World Top 100 Beatport charts. She has been hired to DJ in L.A., NYC, Chicago, San Francisco, Dallas, Portugal, Spain and Costa Rica.

Listen Live Now!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center