The U.S. may be following through on promise made a few months ago to target individual executives from the Royal Bank Scotland (RBS) and JPMorgan Chase for their alleged criminal role in financial crisis.
In September, the Department of Justice (DOJ) issued a memo to all U.S. state attorneys general stating that it will pursue the prosecution of individuals whose actions brought on the Great Recession of seven years ago.
Deputy attorney general Sally Q. Yates stated in the memo that, "One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetuated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public's confidence in our justice system."
The DOJ is reportedly standing by its word and pursuing criminal cases against executives at these two banking institutions for allegedly selling flawed mortgage securities after being warned by associates of their wrongdoings.
The Wall Street Journal (WSJ) reported Tuesday that government officials are placing the case that bankers "ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings and are weighing whether they can prove that constituted fraud," the WSJ noted that people familiar with the criminal probe said.
A $2.2 billion deal in which RBS repackaged home mortgages into bonds back in 2007 is being scrutinized by prosecutors, the Wall Street Journal reported. The SEC noted in a 2013 settlement with RBS that the lead banker on that transaction (whom it didn't name) was trying to push the deal despite concerns of the bank's diligence department. Prosecutors are focusing on two individuals at JPMorgan who worked on a different residential mortgage-backed securities transaction.
"This move reeks of politically driven scapegoating, geared more towards feigning toughness on the banking industry than the pursuit of justice."
According to the Wall Street Journal, these two probes are the most concrete criminal investigations the DOJ is currently conducting regarding the financial crisis. Though some DOJ officials said they believe they have a viable case in the RBS probe, a decision on whether or not charges will be brought is not expected until early next year, according to the report.
Chris J. Turner, head of media relations at RBS, declined to comment on the matter.
J.P. Morgan's Andrew S. Gray also declined to comment beyond their 10Q filing, which revealed the existence of a criminal investigation.
Rebecca Mairone, former COO of one of Bank of America's Countrywide lending divisions, has been the only person to date that was charged with civil fraud for high-risk mortgages originated by Countrywide through a program known as High Speed Swim Lane (HSSL, or Hustle) and then sold off to Fannie Mae and Freddie Mac. Bank of America was also found liable on one charge of fraud in the civil case. Mairone has appealed the charges against her.
Since the crisis, the Department has settled with several large banks, including JPMorgan Chase (a then-record $13 billion in November 2013), Citi ($7 billion in July 2014), and Bank of America (a record $16.65 billion in August 2014) for selling toxic-mortgage backed securities to investors in the run-up to the crisis.
"Once again, the Obama Administration is proving that it is more interested in re-litigating issues related to the near decade old financial crisis versus pursuing programs that reduce urban blight and educate future homebuyers," Five Star Institute President & CEO Ed Delgado said. "This move reeks of politically driven scapegoating, geared more towards feigning toughness on the banking industry than the pursuit of justice."
Delgado continued, "Despite hundreds of billions paid in fines and penalties, the threats to our industry now turn personal. The Administration has moved on from threatening large, faceless organizations to launching personal attacks. No other industry in the history of our great nation has sustained this level of relentless persecution."
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Editor's note: The Five Star Institute is the parent company of DS News and DSNews.com.