Jamie Dimon’s $13 Billion Secret
On March 6, 2013, Holder testified before the Senate Judiciary Committee about the so-called “too big to jail” Wall Street banks. Answering a question from Iowa Senator Chuck Grassley, Holder responded, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute—if we do bring a criminal charge—it will have a negative impact on the national economy, perhaps even the world economy.” Holder’s comment angered many people who believed Wall Street bankers, traders and executives had to be held accountable for their actions leading up to the financial crisis, and that the Justice Department was shirking its responsibility. But his statement was consistent with what he had written in a now-famous June 1999 memorandum: “Prosecutors may consider the collateral consequences of a corporate criminal conviction in determining whether to charge the corporation with a criminal offense.” (To be fair, while the Holder memo did firmly establish the legal viability of using so-called “deferred prosecution agreements” with corporations, the tenor of the memo as a whole was that corporations should be prosecuted if their employees engage in wrongdoing.)
Schneiderman was infuriated with Holder for seeming to undercut his investigation’s efforts. His staff encouraged him to resign from the working group and denounce the administration. They believed that too much of his time was being wasted on what appeared to be a Sisyphean task. Instead, Schneiderman counterpunched. He went back to Capitol Hill and met with senators he hoped were sympathetic to his cause, including Elizabeth Warren, Carl Levin, Jeff Merkley and Sherrod Brown. “I let it be known that I was unhappy with what was going on,” he says.
The other co-chairs of the working group were not happy with Schneiderman’s public gambit. “Whenever you have somebody who you’re supposed to be working with and sharing information with—sharing sensitive information with—and then they kind of go and start talking to the press and blasting you, then that informs the way you deal with them going forward,” explains a person involved with the negotiations. Furthermore, a Justice Department official says Holder’s comments to Congress had no bearing on the determination of the Justice Department to prosecute the big banks. “We will investigate wherever the facts lead,” the official says. “I mean, as simplistic as it sounds, this is true.”
Around the same time, West asked his Justice Department colleague Geoffrey Graber, whom he had known from his years at Morrison Foerster, to assess the status of various pending investigations into Wall Street’s mortgage-backed securities business. There were ten US Attorneys investigating wrongdoing, and West wanted Graber to analyze which of these cases could be ready to file by the end of the year. Graber flew around the country, meeting with various US Attorneys, and reported back to West and Holder in the early summer. One of the cases that Graber concluded was furthest along was Wagner’s complaint against JPMorgan. The assessment, West says, “helped us to make some hard choices.”
After Graber issued his report, things picked up considerably. At that point, Holder started conducting almost weekly meetings at which, one participant said, “he became very, very engaged in pushing forward the work of the working group.” Even Schneiderman was pleased: “They started feeling a little bit more of the heat, and they started really to move,” he says.
On June 26, in Sacramento, Wagner hosted a team of JPMorgan lawyers to hear why the bank believed that the case he was building didn’t rise to the level of criminal or civil liability, and also to learn what JPMorgan’s likely defenses would be. Wagner was unmoved: “After listening to a day of their discussion and going back and looking up what we had, we felt pretty confident, and we were plowing ahead.” At that meeting, he recalls, none of the JPMorgan lawyers ever said, “Yeah, you’re crazy. This never happened.”
In early August, JPMorgan offered to settle the litigation for $1 billion in cash plus another $4 billion of mortgage-related relief. Leading the negotiations for the bank were Dimon and Stephen Cutler, the general counsel and a former chief of enforcement at the Securities and Exchange Commission. By then, Rodgin Cohen of Sullivan & Cromwell had joined the bank’s legal team. Unfortunately, the “ask” from the government to settle the cases was a bit higher: $21.8 billion.
“I thought it was almost a nonstarter,” West says, “and other people in the room said, ‘You know, at least it’s an invitation to talk’…. They knew that we had come back to them with a number that indicated our disappointment with their $1 billion. In fact, they said that to me directly. But that’s when the real conversation began.”
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