DOJ investigation reveals JPMorgan ignored red flags as early as 2006

The DOJ revealed the results of its yearlong investigation into the financial services firm’s past doings on Nov. 19

How did JPMorgan Chase get from a well-respected, profit-making bank to the entity that now needs to pay $13 billion for its role in issuing faulty mortgage-backed securities? The Department of Justice (DOJ) says that it all began as far back as two years before the financial crisis.

The DOJ revealed the results of its yearlong investigation into the financial services firm’s past doings on Nov. 19, which laid the groundwork for the landmark settlement between the two parties. According to DOJ officials, the investigation uncovered that JPMorgan knowingly ignored red flags. According to the investigation, executives were made aware of the indiscretions at meetings as early as 2006 but continued selling the shoddy mortgage-backed securities anyway.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” U.S. Attorney General Eric Holder said in a statement. “J.P. Morgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm's behavior.”

The DOJ says that JPMorgan fully cooperated with the investigation, especially as it was eager to get out from under its legal mess. In recent days, JPMorgan also cut a check to investors worth $4.5 billion, separate from the DOJ settlement, for damages lost in the 2008 financial crisis.

According to JPMorgan CEO Jaime Dimon, the company is simply ready to move on. He said in a statement that the bank is “pleased to have concluded this extensive agreement” and that the agreement “covers a very significant portion” of the faulty securities provided by JPMorgan and other companies now under the bank’s wing, such as Bear Stearns and Washington Mutual. He also said in a conference call that he “simply wouldn't undertake” a deal like the Bear Stearns purchase again.

However, it does not seem that the DOJ’s work is quite yet done. Holder said in his announcement that the DOJ’s probe of government banks “is far from over.” Deputy U.S. Attorney General John Cole also recently said that he finds banks' compliance lacking and that “we cannot help but feel that the message [of compliance] is not getting through often enough or clearly enough.”

 

For more on JPMorgan’s ongoing legal troubles, check out these InsideCounsel stories:

JPMorgan Chase finalizes deal with DOJ

JPMorgan cuts deal with investors over mortgage-backed securities

U.S. attorney opening criminal probe into J.P. Morgan’s dealings

JPMorgan settles with Commodity Future Trading Commission in new “London Whale” deal

Legal costs blast J.P. Morgan’s bottom line

Contributing Author

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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