JPMorgan Chase CEO Jamie Dimon went to Washington almost a month ago to see if U.S. Attorney General Eric Holder would settle a criminal probe of mortgage fraud at the bank if it paid more money to resolve related civil investigations.
Holder’s team, which included Deputy Attorney General James Cole and Associate Attorney General Tony West, said ending the investigation by the U.S. attorney in Sacramento would require the bank to plead guilty to something, according to a person familiar with the talks, which were held in a conference room that was Robert F. Kennedy’s office when he had Holder’s job.
Later, the department proposed the bank plead guilty to making false statements related to sales of toxic mortgage bonds. The bank proposed a nonprosecution agreement, which Holder rejected, the person said. The bank agreed to assist the continuing criminal probe. The negotiation typifies the harder line the Obama administration is taking in its second term.
Holder, 62, in an interview with Bloomberg News about the department’s new aggressiveness on bank probes, said: “It was clearly a priority for the president, it was a priority for me and for this Justice Department. One look at the magnitude of harm and the number of people suffering as a result of these acts that we’re looking into made sense to me that my personal involvement was needed.”
Holder, a Columbia University law school graduate who has spent much of his career at the department, gave the interview just a few hours before he and Dimon agreed Oct. 18 to an outline of a $13 billion accord to resolve the civil investigations.
Holder’s refusal to let JPMorgan, the biggest U.S. bank, escape criminal liability for its mortgage-bond sales, and the move to extract massive penalties for wrongdoing that led to the financial crisis, may go a long way toward appeasing critics of the Justice Department who have been urging charges against bankers since the collapse of Lehman Brothers Holdings Inc. in 2008.
Joe Evangelisti, a spokesman for the New York-based bank, declined to comment on the talks.
The effort began on marching orders from President Barack Obama, who promised in his 2012 State of the Union address to hold banks accountable for their role in helping trigger the deepest recession since the Great Depression. A mortgage task force of prosecutors and regulators set up to carry out the president’s mandate produced the record $13 billion deal, which requires a formal sign-off by both sides.
The first indications that the department’s long criticized efforts were taking shape surfaced in three places. Bank of America Corp. was sued in federal court in Charlotte, North Carolina, on Aug. 6, accused of misleading investors about the quality of loans in $850 million in bond deals.
Two days later, JPMorgan disclosed that it was being civilly and criminally investigated by the U.S. attorney in Sacramento, the criminal probe Dimon and his general counsel, Stephen Cutler, were trying to end in the Sept. 26 talk with Holder, and a lawsuit against Clayton Holdings LLC, Wall Street’s largest due diligence firm, was filed that month, producing a U.S. demand for a turnover of massive amounts of documents about financial clients.
At an Oct. 3 hearing in federal court in Hartford, Connecticut, three days into the government shutdown that halted government lawsuits nationwide, Assistant U.S. Attorney Edward Newman complained Clayton was trying to “saw the legs off” of the Justice Department’s probe into mortgage bond sales by refusing to turn over e-mail and client reports covering a three-year period.
For Clayton’s lawyer Marc Rothenberg it was a sharp shift in tone from a more cooperative arrangement over six years during which prosecutors sought information from his client on a case-by-case basis. As he explained it to the judge in charge of the case, he was suddenly being told by the government: “We want it all, and we want it now.”
Rothenberg said 16 banks were on a list of targets the government gave his client in June. The department is focusing on about half of them, according to a person familiar with the matter. Rothenberg and the government refused to publicly identify the banks.
“There will either be cases announced or resolutions announced, I just don’t know which they will be,” West, who oversees the group devoted to probing the sale of residential mortgage-backed securities, said in an interview at the Justice Department’s headquarters last week.
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