The Department of Justice’s favorable treatment of Wall Street’s biggest banks was so bad that Better Markets sued DOJ last year over its sweetheart settlement with JP Morgan Chase: for $13 billion, JP Morgan got complete civil immunity for its illegal conduct in connection with fraudulently inflating the subprime bubble that caused the financial crash in 2008.
That backroom deal was cut by former Attorney General Eric Holder directly with JP Morgan CEO Jamie Dimon. There was no independent judicial review, no meaningful disclosure, no evidence the punishment fit the crime and, worst of all, no individuals charged or even identified. While legally aggressive, Better Markets sued for transparency, oversight and accountability of both DOJ and JP Morgan Chase.
This inadequate settlement highlighted one of the worst fallouts from the 2008 financial crash: the double standard of justice where Wall Street’s handful of too-big-to-fail banks and bankers get treated differently and better than everyone else. It’s bad enough that their reckless and illegal conduct caused the 2008 financial crash, but since then those megabanks have also convinced too many that enforcing the law against them would result in the collapse of the bank, which, they claim, would endanger the financial system and cause catastrophic economic damage to the country (although Drexel Burnham Lambert would seem to prove that wrong).
Crediting these unsupported, self-serving claims, DOJ has allowed the banks’ too-big-to-fail status to also mean that these banks are too-big-to-jail, effectively handing the biggest, baddest banks in the world a “get out of jail free” card. Not only is this unfair and a violation of the fundamental democratic principle of the rule of law, but it also rewards and incentivizes more reckless and illegal behavior. After all, if the prosecutors aren’t going to charge you, why not break the law to get the biggest bonus possible? That is bad generally, but it’s so much worse here because these megabanks are backed by the taxpayers and get bailed out when they get into trouble (like they did in 2008).
This disreputable and dangerous practice, however, appears to be changing, albeit minimally. First, in the most recent settlements for rigging the foreign exchange markets, DOJ finally required criminal guilty pleas from JP Morgan Chase, Citigroup, Royal Bank of Scotland, UBS and Barclays for their massive criminal conduct. This was in addition to some of the largest fines ever imposed. Second, as Better Markets has been demanding for years, those guilty plea settlements were filed in Federal Court where an independent judge will rule on them and then oversee the banks for at least three years of probation. Third, there were some admissions of criminal wrongdoing by the banks and some meaningful information about the banks’ conduct was publicly detailed, including a 51 page appendix of facts revealing UBS’s activities leading to the criminal charge. Finally, four of the banks were required to specifically notify customers and counterparties of their criminal conduct, possibly enabling private lawsuits for recovery of losses.
These are significant changes from the practices that Better Markets has criticized for years and were the basis for our lawsuit against DOJ. But, there is still much more that the DOJ and the new Attorney General must do to restore the rule of law on Wall Street, end the double standard, and stop the crime spree that is victimizing America’s families, investors, companies, markets and financial system.
First and most importantly, as we have also said for years, banks don’t commit crimes; bankers do and, until bankers are put in jail and hit with big fines they have to personally pay, lawbreaking will remain rampant on Wall Street. Therefore, DOJ must arrest, handcuff, take to trial and send to prison the many individuals who directly committed these crimes. DOJ must also charge – criminally or civilly – the many high paid executives and supervisors who were responsible for making sure such widespread and long-lasting lawbreaking didn’t happen. The SEC must also bring enforcement actions against them and seek to bar them from working in the industry.
Second, DOJ must dramatically increase the disclosure of facts in these cases, including much greater details of how the laws were broken, by whom, what the supervisors did and didn’t do, the amount of revenue, profits and bonuses generated by the illegal conduct, and the amount investors and others lost. The DOJ must then require the guilty parties to admit, rather than merely acknowledge, the facts. Without this, public confidence will never be restored because no one will know if the punishments really fit the crimes. This is also the only way injured parties will have a meaningful chance of recovering their losses in private lawsuits.
Third, DOJ must ensure future guilty pleas have real consequences. For example, while a full SEC waiver from the business activity disqualification might be appropriate for a first offender (assuming other sanctions are sufficient), it is indefensible for a repeat offender. If being a felon, corporate or otherwise, doesn’t have real, concrete significance, then it too will just become another cost of doing business – and a pathetically small one at that.
Fourth, if a corporation is already subject to a deferred prosecution agreement or has previously plead guilty, then the punishment must be exponentially greater. That should include requiring the breakup of a too-big-to-fail bank so that it is never again too-big-to-be indicted and prosecuted like any other criminal enterprise.
So while the recent settlements are far from perfect and much more has to be done, they are improvements over the past. It is now time for the new Attorney General to end the double standard and restore the rule of law to Wall Street. We know how to stop street crime; it’s now up to Loretta Lynch to stop suite crime.
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Watch Better Markets’ CEO Dennis Kelleher’s discuss these settlements on MSNBC here.
