JPMorgan Chase & Co. (JPM)’s $13 billion fraud settlement with the U.S. government should be blocked until a court is able to review it, a Wall Street watchdog group founded by an Atlanta hedge fund manager said.
Better Markets Inc. is seeking judicial scrutiny of the accord because it’s the largest settlement “with a single entity in the 237-year history of the U.S.,” according to a complaint filed today in Washington federal court. “No one has any ability to determine if the $13 billion agreement is fair” or “if it is a sweetheart deal,” the group said in the filing.
The accord, announced in November, settled allegations that the biggest U.S. lender by assets misled investors and the public when it sold bonds backed by faulty residential mortgages. U.S. and state officials blamed JPMorgan’s actions for helping to cause the credit crisis, and said the agreement didn’t shield JPMorgan or its employees from possible charges.
The Justice Department “acted as investigator, prosecutor, judge, juror, sentencer and collector,” Dennis Kelleher, chief executive officer of Better Markets, said at a press conference in Washington. The agreement was “mostly designed to conceal, not reveal.”
Brian Marchiony, a spokesman for New York-based JPMorgan, declined to comment on the complaint.
“The department is confident that the settlement reached with JPMorgan Chase complies with the law,” Ellen Canale, a Justice Department spokeswoman, said in an e-mailed statement.
Better Markets describes itself as “a nonprofit, nonpartisan organization that promotes the public interest in financial reform.” It was founded by Michael Masters, founder and managing member of Atlanta-based Masters Capital Management.
The group expects that its standing to bring the complaint will be challenged, Kelleher said.
“It will be hotly contested but I believe we have a solid foundation to prove and demonstrate concrete and demonstrable harm that give us ample standing to assert both the constitutional claims and the statutory claims,” Kelleher said.
“If we do not, what that means is that no one in the United States can ever challenge a backroom deal like this cut by any attorney general,” he said.
Better Markets’ standing derives from its public interest purpose being thwarted by a lack of transparency in the settlement process and the lack of a “judicial forum in which it could seek to participate to influence” the outcome, the group said in its complaint.
The complaint doesn’t cite any precedents for challenges to similar Justice Department settlements with banks.
“I think it’s fair to call it a novel claim,” driven by uniquely damaging and far-reaching circumstances, Kelleher said in a phone interview following his press conference.
At least one portion of the settlement, a $2 billion civil penalty obtained under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, explicitly required a court to levy the sanction, according to the complaint.
Better Markets also alleged that the Justice Department and U.S. Attorney General Eric Holder “have an apparent conflict of interest” because they have been criticized for failing to be tough enough on large Wall Street firms and “have aggressively used the $13 billion agreement to try to restore their reputations.”
The settlement is “a mere contract” whereby JPMorgan agreed to pay “in exchange for complete civil immunity from DOJ for years of pervasive, egregious and knowing alleged fraud and other illegal conduct related to the worst financial crash in the U.S. since 1929,” according to the complaint.
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