Did JP Morgan Buy Its Way Out of Fraud Charges Associated with Mortgage Backed Securities?

If you believe the recent, well-researched article by financial journalist Matt Taibbi, the answer is a resounding YES!

On November 6, 2014, Matt Taibbi published an amazing piece of investigative journalism in Rolling Stone.  Click HERE for the full story.

It's a little on the long side, but worth the read to any consumer who wonders how it is that not a single banking executive or even mid-manager has faced any consequences for the massive mortgage fraud that resulted in a near melt-down of the American financial system in 2007/2008.  As Taibbi explains, a Whistleblower lawyer who worked for JP Morgan came forward after the crisis, and explained to federal prosecutors and regulators -- the guys who are supposed to be watching the public's back -- that the bank systematically purchased and then resold to pension funds and other investors, bundles of mortgages that the bank allegedly knew were non-performing.  Why is this a problem?  Because, according to the Whistleblower, Alayne Fleischmann, JP Morgan did not disclose these facts to the investors, and in fact actively concealed them.   At one point, the bank allegedly instituted a "no-internal-email policy," prohibiting employees from putting in writing any concerns about the products the bank was selling to large and small consumers.  So public and private pension funds all over the country were duped into purchasing what they thought were among the safest investments in the world -- packed groups of mortgage backed securities -- that the Whistleblower says were already known to JP Morgan to be largely non-performing assets that would likely default.  And according to the article, investors in fact lost billions as a result.  And remember, JP Morgan received billions from the U.S. Taxpayers when the financial system crashed in the late 2000's.  The financial crisis has been blamed in large part on a huge bubble in mortgage debt that went bad, due to intentionally loose lending practices that allowed banks to receive huge sums of money in originating and then reselling mortgages that they knew would never be paid back.

Where this really gets strange is that no one in government did much of anything about the Whistleblower's damning testimony.   As explained in the article, prosecutors initially took great interest in her information, and at one point the federal government was poised to pursue fraud charges against the bank and presumably various executives.   But a phone call from JP Morgan's CEO to the Justice Department changed all of that.   As explained by Taibbi:

"It began when Holder's office scheduled a press conference for the morning of September 24th, 2013, to announce sweeping civil-fraud charges against the bank, all laid out in a detailed complaint drafted by the U.S. attorney's Sacramento office. But that morning the presser was suddenly canceled, and no complaint was filed. According to later news reports, Dimon had personally called Associate Attorney General Tony West, the third-ranking official in the Justice Department, and asked to reopen negotiations to settle the case out of court."

The result of the phone call?  Instead of facing fraud charges, the bank paid a fine and admitted no wrongdoing.  But the fine was huge, right?  Not really.  JP Morgan wrote off a huge chunk of the fine as a tax deduction, and the share price rose shortly after the announcement because investors were so relieved that the bank got off easy.  The net result was that JP Morgan made money on the deal.   The CEO received one the largest executive bonuses in history after the resolution was reached.   You can reach your own conclusions about that.   Meanwhile, many individual investors and those whose retirement is tied to pension funds that lost billions, were left holding the bag.  Some lost everything.

Maybe money can't buy you happiness, but if you are a big Wall Street bank, it can do a lot more than that.  Money can apparently buy you a get out of jail free card.