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From Securities Regulation Daily, February 10, 2014

On cusp of Valentine’s Day, Better Markets challenges JPMorgan’s $13 billion “sweetheart deal”

By Anne Sherry, J.D.

The advocacy group Better Markets, Inc., has sued the Department of Justice (DOJ) and Attorney General Eric Holder to challenge the validity of the $13-billion settlement with JPMorgan Chase & Co. The settlement, announced on November 19, 2013, resolved federal and state civil claims surrounding the bank’s residential mortgage-backed securities (RMBS) practice, but left open the possibility of criminal charges. Better Markets claims that the “agreement gave JPMorgan Chase — with no judicial review or approval — blanket civil immunity for years of alleged pervasive, egregious and knowing fraudulent and illegal conduct that contributed to the 2008 financial crash and the worst economy since the Great Depression” (Better Markets, Inc v. U.S. Department of Justice, February 10, 2014).

Better Markets seeks a declaratory judgment invalidating the settlement and an injunction preventing its enforcement until the DOJ asks a court to review the facts and circumstances. The advocacy group also is asking for a judgment declaring that the DOJ violated the separation of powers doctrine, exceeded its statutory authority, acted arbitrarily and capriciously, and violated the explicit requirements of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the Administrative Procedure Act.

Settlement. The settlement was notable not just for the sum represented, but also for JPMorgan’s acknowledgement of wrongdoing. The firm stipulated that it regularly represented to RMBS investors that securitized mortgage loans complied with underwriting guidelines, despite employees’ knowledge that the loans did not comply with guidelines and were not otherwise appropriate for securitization. Of the $13-billion settlement, $4 billion was earmarked for consumer relief and the remaining $9 billion for satisfying federal and state civil claims, including a $2-billion penalty under FIRREA.

Secret negotiations. Although Better Markets’ fact sheet focuses on alleged illegal conduct by JPMorgan Chase and the impact of the financial crisis on the economy, the complaint is directed at the lack of judicial oversight of the settlement and its grant of broad civil immunity. Better Markets alleges that the settlement negotiations were conducted secretly and in significant part by Attorney General Holder personally. Due to the opacity of the negotiations, the complaint posits, “no one has any ability to determine if the $13 Billion Agreement is fair, adequate, reasonable, and in the public interest or if it is a sweetheart deal entered into behind closed doors … Indeed, one could argue that the $13 billion payment was for making sure no one ever learns the scope and detail of JPMorgan Chase’s illegal conduct.”

Better Markets also claims that the attorney general and the DOJ, feeling pressure from media and the public to hold Wall Street accountable for the financial crisis, had an interest in avoiding judicial review so that “there would be no independent check on their claims.” The complaint further alleges that when the DOJ was about to file a lawsuit, JPMorgan CEO Jamie Dimon successfully offered “billions of dollars more” in exchange for not filing the complaint. “The filing of that lawsuit would have provided the public with a detailed account of the specific acts and omissions of JPMorgan Chase and its executives, supervisors, and employees,” Better Markets avers.

Standing. Better Markets argues that the lack of judicial review “has injured and continues to injure Better Markets by undermining its mission objectives; by interfering with its ability to pursue its advocacy activities; by forcing it to devote resources to identifying and counteracting the harmful effects of the DOJ’s unlawful settlement process; by depriving Better Markets of the information to which it would have been entitled had the DOJ sought judicial review and approval of the $13 Billion Agreement; and by depriving Better Markets of a judicial forum in which it could seek to participate to influence the settlement process before the agreement  becomes effective.”

Attorneys: Dennis M. Kelleher for Better Markets, Inc.

Companies: Better Markets, Inc.; JPMorgan Chase & Co.

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