JPMorgan Probe Prosecutor Put Away Tomato Racketeer

JPMorgan Probe Enlists Prosecutor Who Put Away Tomato Grower CEO
An abandoned home in Stockton, California, in this 2008 file photo. Photographer: Justin Sullivan/Getty Images

Benjamin Wagner, the top U.S. prosecutor for mostly rural eastern California, has busted the head of a tomato-packing company for racketeering and wrangled a settlement from a lumber company over a wildfire.

He’s also prosecuted more than 250 people for mortgage fraud in a district that includes six of the 10 U.S. cities hardest hit by foreclosures since the 2008 financial crisis.

While the typical bad guys Wagner targets are local mortgage brokers and foreclosure scam artists, he has one investigation that stands out. He’s leading the criminal probe of JPMorgan Chase & Co. that U.S. Attorney General Eric Holder refused to close down when the government and the bank reached a tentative $13 billion settlement over mortgage-related malfeasance, a person familiar with the matter said.

Since Wagner’s appointment by President Barack Obama in 2009 as the U.S. attorney in Sacramento, the state capital, he’s taken on the role of sheriff of the region’s housing market. He’s prosecuted people such as Eric Hernandez, a Bakersfield, California, home loan broker sentenced last month to about 11 years in prison for cheating lenders, including JPMorgan, out of $6 million by submitting fraudulent applications to obtain loans.

Targeting a major bank like JPMorgan is long overdue, said David Torres, Hernandez’s attorney.

“It’s about damn time,” said Torres, who claims lenders that encouraged mortgage brokers to break the rules to boost their subprime business weren’t pursued while prosecutors went after easier marks.

‘Totem Pole’

“They have been penalizing the low man on the totem pole,” Torres said by phone from his office in Bakersfield.

Wagner’s investigation of New York-based JPMorgan came to light in August, when the bank disclosed in a regulatory filing that his office had preliminarily determined that the company had violated securities laws in connection with its sales of securities backed by subprime loans from 2005 to 2007.

A criminal investigation was also under way, said JPMorgan, the largest U.S. bank by assets. Wagner has led the probe, reporting back to Holder on his progress every two weeks, said the person, who asked not to be identified because the matter isn’t public.

Wagner, 53, a career prosecutor, is a member of the Justice Department’s Financial Fraud Enforcement Task Force, set up by Obama to investigate causes of the financial crisis. The JPMorgan investigation came to Wagner through the task force’s Residential Mortgage-Backed Securities Working Group. Wagner is co-chairman of the task force, along with the U.S. attorney in Colorado.

Probe’s Beginnings

Two of Wagner’s deputies, Rich Elias and Colleen Kennedy, began digging last year and uncovered alleged fraudulent activity in the packaging of home loans before the mortgage crisis of 2008, Wagner said. Using pre-complaint information gathering allowed under the Financial Institution Reform, Recovery and Enforcement Act of 1989, known as FIRREA, the two worked hard to gather and analyze evidence, Wagner said in an e-mail.

“One of my priorities has been to add to our white-collar and affirmative civil litigation teams,” Wagner said. “It is not that surprising that we would step up to handle a major case like this one.”

Joseph Evangelisti, a JPMorgan spokesman, didn’t immediately respond to an e-mail after regular business hours yesterday seeking comment on Wagner’s probe.

‘Reach Down’

James Wedick, a former Federal Bureau of Investigation special agent in Sacramento, said in an interview that Wagner “has always followed the money.”

“It would not be unlike Ben to reach down into the barrel and follow it and see if it doesn’t develop into something big,” Wedick said.

The Federal Housing Finance Agency said Oct. 25 that JPMorgan agreed to pay $5.1 billion to settle claims related to home loans and mortgage-backed securities the bank sold to Fannie Mae and Freddie Mac, resolving part of the $13 billion accord the company has been negotiating.

In September, Holder, Wagner and other government attorneys met with JPMorgan Chief Executive Officer Jamie Dimon at the Justice Department in Washington and told him the bank could end the criminal investigation by pleading guilty to making false statements related to sales of toxic mortgage bonds, a person familiar with the matter said.

The bank instead sought a nonprosecution agreement, which Holder rejected, the person said. Under the tentative $13 billion accord, JPMorgan will cooperate with Wagner’s criminal investigation.

‘Substantial Discretion’

“Going forward, we will have very substantial discretion in how we handle the investigation, and we will go where the evidence takes us,” Wagner said. “I will be consulting closely, of course, with my colleagues in D.C.”

Wagner, born and partly raised in New York, attended Dartmouth College and New York University School of Law. He began his law career in New York advising banks, not including JPMorgan, on public offerings and other securities transactions.

Wagner’s father, Rodney, worked for JP Morgan & Co. before its 2000 merger with Chase Manhattan Corp., rising to managing director and vice chairman.

Wagner said his father, who died eight years ago, worked in international banking, including sovereign debt workouts, development finance and projects such as the loan agreements to finance the rebuilding of Kuwait after the first Gulf War. The family lived in the Middle East for a few years in the 1970s when the elder Wagner managed a local bank there that was partly owned by JPMorgan, Wagner said.

Sacramento Start

Benjamin Wagner took a job as a prosecutor in Sacramento in 1992. He started with narcotics and violent crime cases in a district encompassing 87,000 square miles stretching from the Oregon border to Bakersfield. Forty-five percent of the district is federal land.

Wagner’s high-dollar cases include a 2012 settlement valued at $114.5 million with Sierra Pacific Industries Inc. to resolve a lawsuit alleging the company was responsible for a 2007 wildfire that burned through 46,000 acres of national forest and destroyed 400-year-old trees. The company denied starting the fire and didn’t admit wrongdoing under the accord.

Sierra Pacific said at the time the case settled that prosecutors had a “bounty hunter mentality” and called the case “a misguided effort to collect exorbitant cash damages that could be boasted about later.”

Tomato Racketeer

Wagner’s white-collar crime cases have included a racketeering and bribery case against the top executive at a tomato processing company in central California, where one-third of the world’s tomato products are prepared.

Frederick Scott Salyer, the former CEO and owner of SK Foods LP, a now-defunct Lemoore, California-based tomato paste processor and seller, pleaded guilty in March 2012 to encouraging a food broker to pay bribes and kickbacks to purchasing managers at Kraft Foods Inc. and Frito-Lay Inc. to ensure they bought products from SK Foods, according to court documents.

Investigators used wiretaps to crack the case, which led to guilty pleas by the purchasing managers and a six-year prison term for Salyer.

Elliot Peters, an attorney for Salyer, didn’t immediately return an e-mail yesterday seeking comment on the case.

Broker’s Surrender

Hernandez, the Bakersfield loan broker, is scheduled to surrender Dec. 16 to begin serving his prison sentence. A federal judge in Fresno ordered him to pay $6 million in restitution to banks, including $723,000 to JPMorgan, according to a court filing.

Wagner said the cases he’s brought involving wrongdoing in the Northern California housing market are as important as the more systemic securities industry issues at stake in the JPMorgan probe. Targets of his prosecutions have included real estate investors, large developers, mortgage brokers, bankers, and real estate investment fund principals, he said.

They included “some folks who were pretty high fliers locally at one point,” he said. “Those are the kind of folks who committed a lot of the mortgage fraud in this region.”

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