DOJ has just given Wagners team its second highest award for their failure to prosecute anyone at JPMorgan (JPM) for committing roughly a dozen of the largest frauds in history. In this case this refers also to the officers that controlled Bear Stearns and Washington Mutual (WaMu) because they were acquired by JPM. Here, I use the term JPM to refer collectively to the three financial institutions.
The four were cited for their work, under the guidance of Shelledy and U.S. Attorney Benjamin Wagner, that led to an unprecedented civil settlement with JPMorgan Chase, the nations largest bank.
The settlement negotiations and the (underlying) fraud investigations they undertook led to what was the largest settlement with a single entity in American history $13 billion and the largest
penalty ever recovered by the department $2 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The measure was enacted in response to the savings and loan crisis of the 1980s.
The settlement resulted in part from an investigation showing that, in the lead-up to the 2007-08 collapse of the economy, JPMorgan sold billions of dollars of residential mortgage-backed securities which included loans that did not comply with underwriting guidelines, were secured by properties with inflated appraisals, were supported by inaccurate loan-to-value or debt-to-income ratios or were otherwise unlawfully originated, according to the citation.
All the while, the citation says, JPMorgan was misrepresenting to investors the (high) quality of the loans
and the (low) risk of loss. The efforts of the four award recipients held wrongdoers accountable for reckless and abusive conduct that contributed to the financial crisis, the citation says.
Wagner said Wednesday the four attorneys exemplify what it truly means to be a public servant.
Lets parse those statements. JPMs senior officers led a series of fraud schemes (only two of which are discussed in the quoted passage) that contributed to the collapse of the economy. JPM sold billions of dollars of [RMBS]
that did not comply with underwriting guidelines, were secured by properties with inflated appraisals, were supported by inaccurate loan-to-value or debt-to-income ratios or where otherwise unlawfully originated. JPM sold the RMBS to the secondary market by misrepresenting to investors the condition of the loans.
What we have here is a confession by DOJ that JPMs, Countrywides, and Merrill Lynchs controlling officers led the three most destructive financial fraud epidemics. They originated hundreds of billions of dollars in mortgages unlawfully through extorting appraisers to inflate appraised values and by making liars loans they knew to be pervasively fraudulent. No honest lender would do that, but accounting control frauds found it to be optimal. Fraudulently originated loans, of course, remain fraudulent so they can only be sold to the secondary market through misrepresenting the quality of the loans. That misrepresentation comes in the form of fraudulent representations and warranties. Loan origination fraud begets secondary market sales fraud.
And yes, if you are wondering, each of these frauds is a federal crime (actually, a whole series of federal crimes). Collectively, DOJ found roughly a million fraudulent acts led by JPMs officers just in the three fraud categories listed in the award citation. (The civil case against JPM involved additional frauds.)
