First JPMorgan -- Now Rabobank Versus The United States: Taking One For The Team?

2013 marks the five-year anniversary of the financial crisis of 2008. I noted in January that this would play a significant role in white-collar enforcement and regulation in 2013, forcing the government either to act or to abandon forever certain investigations related to the crisis because of the five-year statute of limitations for enforcement actions. In addition to the looming deadline, the government has had to deal with repeated criticism of its overall response to the financial crisis, specifically what some perceive as its poor track record in obtaining criminal convictions. The government’s money laundering case against British bank HSBC serves as an example – the $1.9 billion settlement and deferred prosecution agreement (DPA) elicited cries that banks and financial institutions were perceived as “too big to jail” and prompted Congressional hearings on the subject.

In all likelihood, the government has been feeling some pressure to flex its muscle swiftly and with force. Enter JPMorgan Chase, the nation’s biggest bank, and, in rapid succession, Rabobank, a Dutch multinational bank. First, JPMorgan Chase – if the government’s objective was to select a bank to use as an example, JPMorgan Chasewas an easy target as a big, multinational financial institution with an abundance of international activity and hundreds of thousands of employees, some of whom will, of course, do bad things. Indeed, the list of regulatory and criminal investigations with which the bank has had to contend this year is proof of the bank’s susceptibility in this regard.

First, JPMorgan Chase has been under investigation for more than a year for alleged mortgage abuses dating back to 2008 subprime mortgage crisis that preceded and led to the financial crisis. Media reports indicate that the bank is trying to negotiate the details of a tentative $13 billion settlement with the Justice Department. The deal, which resulted after a series of private negotiations between Attorney General Eric Holder and JPMorgan’s Chief Executive Jamie Dimon, would resolve state and federal cases revolving around the banks mortgage practices leading up to the financial crisis. It would also be a record penalty recovery for the government, with $9 billion in fines and $4 billion in relief for homeowners. Issues remain before the deal can be finalized, however, including whether some liability falls to the Federal Deposit Insurance Corporation or must be borne exclusively by the bank.

Nothing like kicking a bank while its down. Just last month, JPMorgan agreed to pay $100 million and admit wrongdoing in an investigation into market manipulation in its Londonoffice. In that case, a “rogue” trader referred to as the “London Whale” accumulated outsized positions in credit default swaps, causing a multibillion-dollar trading loss for JPMorgan. Instead of helping it lick its wounds, regulators raised questions about the bank’s risk management system and internal controls. The government’s pursuit of JPMorgan – in fact the victim of that misconduct – demonstrates the relative ease with which a case may developed against a corporate entity as compared to individual actors for whom the government must prove criminal intent.

Further, the campaign against JP Morgan is not at an end. The bank still has to contend with the criminal investigation being conducted by the Manhattan United States Attorney Office’s into the bank’s role in the Madoff case and questions of whether JPMorgan turned a blind eye to Madoff’s machinations. Although speculation abounds that the government may offer a deferred prosecution agreement to resolve the case, the possibility of indictment and a push for a guilty plea have not been ruled out. If the government agrees to the entry of a DPA, JPMorgan would be the first big Wall Street bank to be subjected to such an agreement.

Some analysts, defense experts, and Wall Street observers believe the government is going too far in its pursuit of JPMorgan. They argue that JPMorgan inherited many of the mortgage issues when, at the government’s urging, they acquired Bear Stearns and Washington Mutual in 2008 and that its rogue London-based traders have already caused the institution enough damage. Others insist that the price of the combined settlements is just too high.

The government’s aggressive stance in the JPMorgan cases is not isolated though. Just yesterday, the government extracted a settlement from Rabobank in its ongoing investigation into the manipulation of the London interbank offered rate or LIBOR. The bank entered into a DPA and has accepted responsibility for wire fraud for manipulating LIBOR and Euribor rates, agreeing to pay more than $1 billion in criminal and civil penalties to settle investigations by United States, British and other authorities. This is the second largest settlement obtained in the LIBOR investigation.

Further, in July, the government brought criminal charges against hedge fund SAC Capital alleging it sanctioned insider trading for more than a decade. At least eight individuals have been charged with insider trading, six of whom have pled guilty. Reports suggest that the company is considering a plea to securities fraud and payment of criminal penalties of about 1.2 billion, which would constitute the largest-ever insider trading penalty. In addition, according to these reports, the company’s CEO, Steven Cohen, will agree to stop managing outside money. The agreement and guilty plea would be a coup for the government, which has been pursuing SAC for years.

The government’s approach in the regulatory and criminal investigations of JPMorgan, Rabobank and other financial institutions such as SAC signals a shift in the government’s attitude toward big banks. Wary of continued criticism that it has been too lenient on “big” business, the government may be taking a stand. Indeed, in a recent speech, United States Attorney for Manhattan Preet Bharara insisted that no one institution was too big to indict or “jail.” JPMorgan Chase and Rabobank may be the proof in the pudding.

 

Topics:  Banking Crisis, Deferred Prosecution Agreements, Enforcement Actions, JPMorgan Chase, Statute of Limitations, White Collar Crimes

Published In: Business Torts Updates, Criminal Law Updates, Finance & Banking Updates, Residential Real Estate Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morvillo Abramowitz Grand Iason & Anello P.C. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »