Jamie Dimon, CEO of J.P. Morgan Chase, is a master at spin. He sure has a great history, though. At one time, Mr. Dimon was considered a leading candidate for President Trump’s Treasury Secretary position. He served on the President’s Strategy and Policy Forum until his recent resignation in protest over the President’s comments regarding Charlottesville. And, he makes no excuse in criticizing several of the President’s policy positions. Sounds like a hero, so far.
Mr. Dimon has also long been considered a hero for running a “clean bank,” supposedly unlike many of his Wall Street colleagues. He supposedly spearheaded warnings at Chase that subprime mortgages were going bad and directed that the bank’s exposure to subprime be significantly reduced before the last financial debacle. Within J.P. Morgan Chase, the bank consistently expresses the ”do the right thing” principle that emerged in Mr. Dimon’s first annual letter to shareholders as CEO in March of 2006. His mantra, “you know what the right thing to do is, we all know what the right thing to do is.”
Unlike other TBTF Wall Street banks, the article goes on to say, Chase “has emerged as the voice of conscience in its industry through its various statements, tweets, initiatives, and donations. Since August 1, JPMorgan has been mentioned more than 88,000 times online.” A former employee says, “Chase sees an opportunity to differentiate itself from ‘Wall Street’…There’s only one Jamie at the entire bank. It’s like the house that Jamie built.” And the accolades keep coming as Chase has been repeatedly praised for “saving” Bear Sterns and Washington Mutual, thereby avoiding even more financial havoc during the crisis.
Yet the nation’s largest bank may well be a glass house, and you know how that saying goes. It seems that despite Mr. Dimon’s mantra of ”do the right thing,” the right thing has not always been done. In fact, according to William Cohan’s latest article in Vanity Fair it seems that in 2013, Chase agreed to pay $13 billion to settle DOJ claims that it had “misled investors in the years leading up to the financial crisis.” At the time, this was, by far, the largest settlement paid coming out of the financial crisis.
Given Chase’s record of good performance throughout the debacle, questions were asked about why Chase would settle for such a large amount, and Mr. Dimon has repeatedly shrugged the questions off, expressing anger at the DOJ and saying the whole thing was “unfair.”
Yet, was it? As Mr. Cohan originally reported in a 2014 Nation’s article, much evidence that disputes that claim.
He says ”JPMorgan Chase’s settlement came at the end of an intense series of negotiations with a wide range of government officials. Perhaps the most pivotal moment in the conversations occurred in September 2013 when D.O.J. lawyers shared with Dimon and his attorneys a draft of a 92-page civil complaint that Benjamin B. Wagner, the then U.S. attorney in the Eastern District of California, and his colleagues were prepared to file in federal court. The draft complaint—based upon hundreds of thousands of subpoenaed internal JPMorgan documents; and interviews with its bankers, employees in its mortgage-backed securities division, and third-party mortgage originator—alleged that the bank’s due-diligence process had been subverted, and ignored, during the years before the crisis. In Mr. Wagner’s narrative, the bank was not nearly the “white knight of Wall Street.”
But the claim was never publicly filed. The DOJ and the bank agreed to the large $13 billion settlement and an eleven-page statement of facts was released, which did not offer much in the way of insight and the matter was “put to bed.” Mr. Dimon claimed outrage and frustration that the bank was forced to settle; however, it seemed that Chase was also anxious on keeping the unfiled complaints out of the public record and even settled a separate FHLB of Pittsburg lawsuit which would have unearthed the complaint.
Was Mr. Dimon diverting curiosity by his outrage?
Well now? Four years later, all of this may be coming to light. As Mr. Cohan reports, Daniel Novack, a First Amendment attorney initiated a FOIA lawsuit and has received a partially redacted copy of this complaint from the D.O.J. which he shared with Mr. Cohan.
Mr. Cohan writes, “the complaint begins, “By this action, the United States seeks to recover civil penalties” against JPMorgan Chase and its investment banking arm “for a fraudulent and deceptive scheme to package and sell residential mortgage-backed securities” that the bank “knew contained a material amount of materially defective loans.” It continues, “JPMorgan knowingly securitized and sold billions of dollars of mortgage loans that were originated in material violation of underwriting guidelines and law.””
“The bank, it continues, “ignored its due diligence findings and securitized materially defective loans” and “knowingly purchased and securitized loans with material credit and compliance defects.” The document further alleges that the bank, and its employees, knowingly sold mortgage-related securities with “inflated appraisals” and that “ignored internal controls” and that it “intentionally misrepresented” to investors “the quality of the loans” in offering documents, filed with the Securities and Exchange Commission, for the securities.” Mr. Cohan further describes the complaint as saying “the bank continued to sell mortgage-backed securities even though Dimon himself was worried that the residential mortgage-backed securities market was about to crash.”
And the complaint goes into significant detail about the evidence the DOJ had obtained, providing details on ten allegedly fraudulent mortgage backed securities containing materially defective mortgages which were knowingly sold to investors.
Mr. Cohan notes that the MBS investors lost billions of dollars; however, the MBS deals resulted in bonuses to bank employees in the millions. It was also referenced that, at Mr. Dimon’s insistence, the bank formulated “an exit strategy to divest itself” of the riskiest of the mortgage backed securities. Yet it continued to purchase and securitize subprime loans without addressing the breakdown of its due diligence and not disclosing this knowledge to investors. The draft complaint is clear, “JP Morgan had knowledge that a substantial portion of the loans did not comply with the originator’s underwriting guidelines and had a substantial risk of default.”
I have often expressed my belief that the all of the large bank settlements were merely extortion payments to the DOJ to lock up the evidence to hide the egregious acts of fraud committed on the American public.
This appears to be a perfect example of that happening.
So, is Jamie Dimon an unsung hero? Or, a master of spin?
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
