The record $13 billion mortgage-backed securities settlement that JPMorgan Chase just reached with federal and state regulators will be analyzed, reviewed, studied, and explored for quite some time to come. Here are three key takeaways the day after the settlement terms became final, focusing especially on what it means for the future of financial fraud cases.
First, “billions” are the new “millions.”
The JPMorgan settlement makes it clear that in cases involving financial institutions or other entities that are the size and scale of JPMorgan, a settlement will require the payment of billions of dollars, not millions, or even hundreds of millions, of dollars. For further proof, look at these settlements that have taken place in just the past month: SAC Capital Pleads Guilty To Insider Trading And Will Pay $1.8 Billion; Johnson & Johnson To Pay More Than $2.2 Billion To Resolve Criminal And Civil Investigations; Rabobank Admits Wrongdoing In Libor Investigation, Agrees To Pay Over $1 Billion. There also was this: HSBC Hit With Record $2.46 Billion Judgment In Securities Fraud Class Action. And keep in mind what SNL Financial recently reported: Big Banks’ Financial Crisis Settlement Tab Tops $65 Billion, With More Expected, SNL Financial Reports.
Second, more financial fraud prosecutions, civil cases alleging financial fraud, and settlements of these disputes are on the horizon – both in the short term and in the long term.
A lot more.
As Attorney General Eric Holder said in discussing the JPMorgan settlement, “The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over.”
Finally, we have reached a point where more and more institutions will be acknowledging errors, admitting that have they violated the law, or otherwise taking responsibility for their actions, at least in these mega-cases. Judge Jed S. Rakoff ultimately may be credited with requiring this, Securities and Exchange Commission Chairman Mary Jo White has adopted it (at least in some instances), and the reality is that we are beginning to see it – just the other day, for example, Rabobank admitted to wrongdoing in its $1 billion Libor settlement.
And we have the statement of facts in the JPMorgan global settlement. In it, JPMorgan acknowledges that it regularly misrepresented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with its own guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors. This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis, the statement of facts says.
We here at the the Financial Fraud Law Blog and the Financial Fraud Law Report will continue to follow and discuss the JPMorgan settlement, and other financial fraud cases, for you.
Contact the author at firstname.lastname@example.org.
For more information about LexisNexis products and solutions connect with us through our corporate site.