New York Times writers Ben Protess and Jessica Silver-Greenberg look at the multiplying legal challenges faced by JPMorgan after it’s $1 billion penalty payment
The nation’s largest bank is bracing for a lawsuit from federal prosecutors in California who suspect that the bank sold shoddy mortgage securities to investors in the run-up to the financial crisis, according to people briefed on the matter.
he case, expected as soon as Tuesday, could foreshadow other actions stemming from the bank’s crisis-era mortgage business. Federal prosecutors in Philadelphia, the people briefed on the matter said, are also investigating JPMorgan’s sale of mortgage securities.
Underscoring the breadth of the scrutiny, the people said, the Justice Department and the Department of Housing and Urban Development have discussed the possibility of striking a wide-ranging settlement to conclude many of the looming mortgage investigations from federal authorities and state attorneys general. A proposed settlement figure of about $20 billion was discussed at the bank, according to people briefed on the matter, but it is not clear who proposed that number.
The looming legal threats are not isolated to the bank’s mortgage business. After JPMorgan recently resisted a settlement with the nation’s commodities trading regulator, the people briefed on the matter said, the agency began drafting a lawsuit connected to the bank’s multibillion-dollar “London whale” trading loss last year. The agency, which argued that the London trading position was so large that it manipulated the market for financial contracts known as derivatives, sought an approximately $100 million fine and an acknowledgment of wrongdoing from the bank.
JPMorgan initially refused to make such an admission — disputing the accusations and fearing the admission could set a precedent that would threaten some of the bank’s current trading businesses. But late Friday, the bank quietly approached the trading regulator to reopen settlement talks, the people briefed on the matter said.
JPMorgan declined to comment on the talks with the Commodity Futures Trading Commission. Reuters earlier reported the timing of the lawsuit from the California prosecutors.
The wrangling over the mortgage cases and the trading loss investigation illustrate JPMorgan’s legal quandary. If it settles with authorities, the bank must accept steep fines or concede embarrassing admissions. But if it adopts a more hardball approach, the bank can anger government authorities, prompting years of litigation.
Even a conciliatory stance does not always placate the government. Just days after JPMorgan paid $410 million to the nation’s energy regulator to resolve claims the bank devised “manipulative schemes” to transform “money-losing power plants into powerful profit centers,” federal prosecutors in Manhattan opened an investigation into the same activity.
The difficult legal choices being weighed by the bank — should it settle or should it fight — coincide with an unusual wave of scrutiny for JPMorgan, which is now facing investigations from at least seven federal agencies, several state regulators and two foreign nations. The investigations span across the bank. Its mortgage business, debt collection practices and its hiring of the children of well-connected Chinese officials are all under fire in Washington.
And the threats of litigation from the commodities regulator, the Commodity Futures Trading Commission, come on top of $920 million in fines JPMorgan paid last week to four other regulators investigating the London trading loss. (In another settlement announced last week, JPMorgan agreed to pay $80 million to regulators over accusations that it charged credit card customers for identity theft products they never received.)