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How a Memo Cost Big Banks $37 Billion
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Assistant U.S. Attorney at the Fresno office, Richard Elias, spots a JP Morgan Chase bank memo in 2012 after looking at many documents. This starts the process leading to the large settlements of $37 billion with U.S. banks in 2014. The memo used words such as "fallout," "kick" and other words clearly showing the banks were aware of the serious risks associated with the securities and the fallout expected. By 2012 the Obama administration felt the pressure from Democrats in Congress to show results in prosecution of banks for schemes related to packaging of highly risky mortgages into securities that led to the 2008 financial crisis. The Justice Department senior staff, Mr. West and Mr. Cole decided to focus on this incriminating evidence for JP Morgan Chase, Bank of America and Citigroup. Most of 2013 was used for preparation of the cases against the bank which were prosecuted using the Financial Institutions Recovery, Reform and Enforcement Act of 1989. Firrea has provisions not contained in other legislation, to get huge settlements as penalties, with extended time period for enforcement, when damage was done to financial institutions. The resulting effort led by Attorney General Holder led to the largest part of the total $128 billion paid in settlements by U.S. banks for cases related to the 2008 financial crisis.
How the U.S. Justice Department used the 1989 Financial Institutions Recovery, Reform and Enforcement Act of 1989 to collect $37 billion from banks for improper packaging of mortgage securities
12/19/2014
The improper packaging of mortgage securities led to the 2008 financial crisis which exacerbated income disparities in the U.S., led to millions of home foreclosures, major auto bankruptcies and a global crisis. For five years till 2013 no major settlements were made and Democrats in Congress pushed for action from the Obama administration. In 2013 the U.S. Justice Department after a year of preparation used the Firrea Act of 1989 designed to address the S&L crisis as a way to get the banks to settle. Firrea had provisions for damage to financial institutions with huge penalties and an extended time period into the future. A memo at JP Morgan by staff warning about the dangers of the securties caught the eye of a prosecutor in the Fresno office, leading to it being taken up in Justice Department meetings, and ending with instructions from Mr. West to use this as a focus of investigations for all banks. investigations.
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How a Memo Cost Big Banks $37 Billion
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