History will judge our willingness to defend moral principles against the corrupting influence of the Wall Street capos. So far, their campaign cash and lucrative revolving-door jobs have kept them above the law, while their PR firms and personal salesmanship have largely exempted them from moral judgement in the inner corridors of wealth and power.
Chicago in the 1920s, the Chicago of Al Capone, had nothing on today's Washington D.C.
A new lawsuit against JPMorgan Chase is being met with both optimism and skepticism. But, ironically, investigators have finally broken their silence on criminal indictments for bankers... to protect its chief executive.
The Chicago-style immunity enjoyed by today's bankers will only be broken if this recent lawsuit is followed by many more -- along with criminal indictments where appropriate. And these lawsuits will only deter future crimes if bankers are forced to make restitution from their own pockets, not their shareholders'.
Look Who's Talking
The Justice Department has been stonewalling the public for years on Wall Street crime by saying it "can't comment on ongoing investigations." But when it comes to investigations designed to exonerate those same bank CEOs, look who's talking now!
"Federal authorities are using taped phone conversations to build criminal cases related to the multibillion-dollar trading loss at JPMorgan Chase," The New York Times "Dealbook" blog reported this week, "focusing on calls in which employees openly discussed how to value the troubled bets in a favorable way."
Why so chatty all of sudden, "sources close to the investigation"? The answer becomes obvious a few paragraphs into the piece: "The investigation does not appear to touch the upper echelons of the executive suite ... The findings could insulate JPMorgan and its chief executive, Jamie Dimon, from further fallout." (emphasis ours)
Got that? Investigators won't say a word when big bankers are under suspicion. But when talking will help them you can't shut 'em up!
Lucky Jim
And ah, yes. James "Jamie" Dimon. Dimon, the CEO whose bank has apparently been above the law, suddenly finds that his institution is the target of a criminal investigation. At long last. And the Justice Department's even willing to talk about it! But whaddya know? They're claiming it will exonerate Mr. Dimon.
Jamie Dimon. Like the man in the Dylan song says: He can't help it if he's lucky.
Dealbook's anonymous source is quite the chatterbox, even offering the names of the individual suspects -- most of whom, as fate would have it, are French citizens who have returned to their home country and are therefore beyond the reach of U.S. law. Zut alors!
(Ah, how we wish we could indict them, one imagines the Justice Department official whispering to the journalist. But their government will not extradite. You know how it is with the French, our anonymous source adds with a shrug. I ask my friends at the Sûreté what can be done, but they merely light another Gauloise and sayC'est la vie.)
Looks like Jamie Dimon's luck is contagious.
London Calling
Even this happy accident -- from a Justice Department that has yet to convict a single employee from a major bank! -- isn't the exoneration that Dealbook seems to think it is, not even if it were to genuinely clear Chase's senior executives on the original fraud. Au contraire, mes amis!
There's evidence -- very public evidence -- which suggests that Dimon and other senior executives may have misled investors about the extent of the losses on an investor call. If true, that's a crime, too: It's called 'stock fraud.' and the SEC says it's investigating. In cases of this kind, the SEC must refer any evidence of a crime to the Justice Department for investigation.
But when it comes to the investor fraud angle, the Chatty Kathies at the DOJ have apparently clammed up again.
Mr. Dimon also reassured investors of JPM's fiscal soundness by describing the bank's rigorous internal risk management controls. What investors didn't know was that he apparently exempted the London unit from those controls without any public notice. That's also potentially illegal, under both Sarbanes-Oxley and the 1933 law that created the SEC.
The London unit reportedly bypassed the bank's normal organizational chart and reported directly to Dimon himself. As CEO, Dimon is required to confirm in writing every year that he has personally reviewed the company's procedures to ensure that they prevent fraud of this kind. It's illegal to do so falsely.
ProPublica's Jesse Eisenger asks the right question: What did Jamie Dimon know and when did he know it? But investigators are apparently too busy pursuing errant Frenchmen to ask it.
Diamond Jamie
Dimon wasn't acting like somebody who was worried about accounting for his own actions this week. He was too busy traveling to Washington to lecture the government on what's doing wrong financially.
"Jamie Dimon is mad at the government," says CNN Money. Why? Because it's not cutting spending quickly enough to please him. Some people still have the silly notion that we need to help the millions of people who have been economically victimized by people like, well, like Jamie Dimon.
When we call Dimon's JPMorgan Chase a serial corporate criminal, it's not empty rhetoric: It's documented fact. Chase was implicated in a recent municipal bid-rigging case which led to two convictions. It has paid settlements in six fraud cases over the last thirteen years. It paid more than $2 billion to settle fraud charges in the WorldCom case, $135 million in the Enron case, and more than $153 million to settle charges of investor fraud regarding mortgage-backed securities.
JPM gave up nearly three quarters of a billion dollars in fines and lost fees over the Jefferson County, Alabama bribery case. Then there's the $25 million for unlawful IPO (stock) allocations; $25 million (and possibly more) for what was essentially illegal restraint of trade in forcing retailers to use the credit card network it co-owned; and $6 million regarding illegal profit-sharing and tie-ins at JPMorgan Chase Securities.
And yet, other than a low-level guilty plea in the bribery case, no individual bankers have ever paid for these misdeeds -- not with jail time, and not even financially. As far as the Justice Department is concerned, it looks like all this fraud just... committed itself. These fines and settlements were all paid by shareholders. That's right: Nobody went to jail.
That means bankers at institutions like JPMorgan Chase have absolutely no reason not to keep breaking the law. Meanwhile Jamie Dimon, a man whose gluttony for praise rivals that of namesake Diamond Jim Brady's for food, roams the corridors of power seeking influence ... and flattery.
New Suits
What about the lawsuit that New York Attorney General Eric Schneiderman filed recently against JPMorgan Chase? A certain skepticism was to be expected at this point, after the government's long-standing failure to take action and the many disappointments surrounding the $25 billion mortgage fraud lawsuit. Could this suit change that pattern?
The Schneiderman lawsuit, filed with the long-moribund presidential task force on mortgage securities fraud, focuses on crimes committed at Bear Stearns, the subsidiary that JPMorgan Chase acquired with strong encouragement -- and a lot of financial incentives -- from the Federal Reserve and the Treasury Department. Why not go after an active bank?
There's also a new lawsuit against Wells Fargo involving what David Dayen describes as "incendiary charges" -- but which has been met with some skepticism as well.
I shared the doubts, although I was heartened by an initial assessment from Prof. Adam Levitin. Levitin, who's highly respected in the field of bank fraud, thinks that this lawsuit could set an important precedent. The suit was filed under New York state's Martin Act, which allows for broader charges than Federal law does. Levitin observes that Schneiderman's is a "platform-wide case" covering a broad and long-standing pattern of fraudulent activity.
"That's a new type of suit," Levitin writes, "not one that has been brought under the Martin Act before." He adds that it "majorly ups the ante for JPMorgan" and "covers an enormous volume of deals." Levitin argues that this might result in substantial damages.
If the Schneiderman suit is followed by filings against several other banks, as some stories have suggested, it could be the start of something important. But even if they're successful they'll fail to deter future Wall Street crimes -- that is, unless courts demand that bankers personally return their ill-gotten gains. And ultimately only prison sentences will deter future criminals.
Will these lawsuits rock these banks back on their heels?
Market Predictors
The market doesn't seem to think so. It rewarded JPMorgan Chase with another excellent week of trading. It also offered its blessing to Wells Fargo, whose was filed under the False Claims Act which forbids defrauding the government and under the little-used FIRREA statute.
If the market doubts that these banks will be brought to justice, it can hardly be blamed for that. Investors are letting recent experience guide their judgement. Some of us lapsed into optimism at this year's first attempts to hold banks accountable. Those of us who allowed ourselves to feel that optimism more than once wound up feeling like Charlie Brown. This Administration has pulled the football from us one too many times.
So far the naysayers have had a better track record when it comes to predictions than we do. It's up to Schneiderman and the task force to prove them wrong.
Good Grief, Charlie Prince!
According to the Wells Fargo suit, the bank continued to illegally conceal its "materially deficient" loans until the end of 2010, well after the wheels of justice were allegedly turning against them. They clearly didn't believe it either.
It was Charles Prince, CEO of crime-plagued and failed Citigroup, who most eloquently described the motivation behind bankers' willingness to follow each bubble, each greed-driven whim, as far as it will take them: "As long as the music is playing, you've got to get up and dance." Looks like some of them are still dancing,
So far nobody has made bankers pay for their crimes with criminal indictments, or even with fines paid from their own pockets rather than that of shareholders. And ego-driven financiers like "Diamond" Jamie Dimon haven't even faced much public approbation the actions of their institutions -- actions which include bribery and fraud. The mildest slights to their vanity throw them into rage, as a recent Vanity Fair article on Dimon demonstrates once again. But the real shaming they've earned has yet to be leivered.
Yves Smith believes that "One of these days, Dimon's lack of caution will catch up with him." Let's hope so. But man, he sure is... lucky Hopefully Adam Levitin is right and the Bear Stearns suit is prelude for more actions to come. But those actions must have a deterrent effect which can only come when bankers are held personally accountable for their actions.
Until then, for Jamie Dimon and other executives, the beat goes on.