Reuters news service reported yesterday that federal prosecutors are pursuing criminal charges against executives at two banks for allegedly marketing mortgage-backed securities loaded with faulty loans after warnings by coworkers. If so, this would be the first cases of criminal charges against bankers.
Citing an article in the Wall Street Journal, Reuters reported possible criminal investigations at both JPMorgan Chase & Company (JPMorgan), and at the Royal Bank of Scotland (RBS):
"Prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007 at RBS and two people who worked on a different residential-mortgage deal at JPMorgan, the Journal said. JPMorgan, RBS and Department of Justice declined to comment. JPMorgan said in a filing in November that it was responding to an investigation by the DoJ's criminal division.
It would seem that the news reports in May 2015 covered in this blog were largely accurate. At that time, news reports mentioned possible charges against five banks. Also in May, a federal court ruled that the Japanese bank Nomura Holdings and the Royal Bank of Scotland had misled Fannie Mae and Freddie Mac while selling them mortgage bonds that contained errors and misrepresentations.
JPMorgan has a colorful history, part of which is worth reviewing. In January 2015, it was one of four banks that settled illegal foreclosure charges with the Massachusetts Attorney General with a $2.7 million payment. In November 2014, both RBS and JPMorgan were part of a group of banks that paid $4.2 billion in fines to U.S., U.K., and Swiss regulators for rigging the foreign exchange, or FX, market. In December 2013, JPMorgan paid $515.4 million to the Federal Deposit Insurance Company (FDIC), $300 million to the California Attorney General, and $13 billion with the U.S. Justice Department to settle charges about the misrepresentation of offering documents for residential mortgage-backed securities (RMBS).
December 2013 was a big month. JPMorgan Chase announced a data breach that affected half a million prepaid card customers. U.S. taxpayers also learned that month that much of the huge fines JPMorgan paid were tax-deductible and reduced the bank's tax payments. in September 2013, the Consumer Financial Protection Bureau (CFPB) ordered both Chase Bank USA, N.A. and JPMorgan Chase Bank, N.A. to refund about $309 million to more than 2.1 million customers for illegal credit card practices, where customers were enrolled in credit monitoring services without their authorization and charged for services not delivered.