Exclusive: DOJ Negotiates with JP Morgan

murrayw — Mon, 28 Oct 2013 11:22:05 +0000

Have a new story up today at International Business Times (IBT) on DOJ’s negotiations with JP Morgan to end DOJ’s probe of the bank for its work on behalf of Bernard Madoff. The top of my story:

Federal prosecutors in New York are pushing for a guilty plea from JPMorgan Chase for allegedly turning a blind eye to Bernard Madoff’s Ponzi scheme, according to two law enforcement officials. They have informed their superiors in the Justice Department that they strongly oppose any settlement with the banking giant unless one of its subsidiaries pleads guilty to at least a single criminal charge.

Accused swindler Bernard Madoff enters the Manhattan federal court house in New York, March 12, 2009. REUTERS/Shannon Stapleton

JPMorgan Chase (NYSE:JM) had offered to settle the potential case regarding the work for Madoff in exchange for no formal criminal charges being brought against it. But top aides to Preet Bharara, the U.S. attorney for the Southern District of New York, as well as several senior career prosecutors in the Justice Department’s Criminal Division, have been adamant that such a deal is unacceptable, according to the sources.

Why have prosecutors taken such a tough stance?:

It is highly unusual for such a major bank to be pressured by prosecutors to admit criminal guilt. That pressure reflects the seriousness of what prosecutors consider senior JPMorgan officials to have done: Sources close to the investigation say investigators learned from the bank’s own internal, confidential records that even though senior JPMorgan executives suspected Madoff was running a Ponzi scheme, they never informed federal regulators of their suspicions, as is required by federal law.

Such a warning might have tipped off regulators — and more importantly, investors — years earlier. Said one federal law enforcement official: “If they had stricter controls in place, if they had stricter money-laundering standards, if they simply informed regulators of their suspicions … perhaps someone in government would have given Madoff a look, and shut him down earlier.” Billions of investors’ dollars might very well have been saved.

Prosecutors advocating a guilty plea might face an uphill battle, however:

The position taken by prosecutors who work for Bharara and others in the Criminal Division in Washington may once again pit them against the highest levels of the Justice Department, who have long argued that some banks that were once “too big to fail” are also too big to face criminal charges due to the potential impact on the economy. The long-running debate over the proper punishment for these misdeeds has long stymied the aides in the U.S. Attorney’s Office in New York. “It does feel a lot like Groundhog Day,” said one government official involved in the matter. This time, however, they have greater optimism that they — and to their mind, the public — will prevail.

Lanny Breuer, who headed the Criminal Division until March and was in charge of prosecuting Wall Street crimes, has said decisions as to which banks to charge were based on “sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects.” His boss, Attorney General Eric Holder, has echoed those comments: “The impact on the stability of the financial markets around the world is something we take into consideration.

On the positive side, however, as I report, Breuer left the Justice Department in March.

In addition, Preet Bharara, the United States Attorney for the Southern District of New York, has been pushing for a more aggressive prosecutorial approach towards banks and financial institutions involved in causing the financial crisis:

Bharara has at times appeared to openly signal defiance of that doctrine: “I don’t think anyone is too big to indict — no one is too big to jail,” he declared in a July 2013 speech. Prosecutors who work for Bharara and others in D.C. hope he will now powerfully advocate their position that JPMorgan must not escape criminal charges for its involvement with Madoff.

Ben Protess and Jessica Silver-Greenberg have even greater detail of this particular angle of the story in the New York Times:

For the government, [the case] would represent an extraordinarily rare show of force. Ever since a criminal indictment led to the demise of the accounting firm Arthur Andersen, Enron’s auditor, the government has been wary of imposing criminal charges on big corporations for fear that it would imperil the institution and have ripple effects on the broader economy. Under federal guidelines, prosecutors must weigh “collateral consequences,” like job losses and economic implications, in such an action.

HSBC, for example, paid $1.9 billion to settle a money-laundering case, but the Justice Department stopped short of indicting the British bank. The case reinforced concerns that big banks, having grown so large and interconnected, are too big to indict.

Yet Preet Bharara, the United States attorney in Manhattan whose office is handling the JPMorgan case, has disputed that theory. In a recent speech, Mr. Bharara said he rejected the idea from companies that “because we’re so big, to take action against us, the sky is going to fall.”

Also helping the faction in the DOJ that wants the Obama administrative and its Justice Department take a more activist stance in prosecuting Wall Street firms and banks has been a trio of Seantors: Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.) and Elizabeth Warren (D-Mass.). The thrree most recently flexed their muscles by torpedoing the nomination of Larry Summers to head the Federal Reserve Board. A demand by Eric Holder and DOJ that JPMorgan plead guilty would is just the type of tough behavior that the three Senators have been pressing for.

My entire story can be found here. The Times report is here. Matt Taibi’s take.

– Muray Waas

Save

Murray Waas » Eric Holder

Exclusive: DOJ Negotiates with JP Morgan