Tags: JPMorgan | settlement | Frenkel | mortgage

Former Prosecutor: JPMorgan Settlement 'Preposterous'

By Michael Kling   |   Monday, 21 Oct 2013 12:59 PM

A former federal and state prosecutor lambasted JPMorgan Chase's $13 billion recent settlement with regulators.

"This number is absolutely preposterous," Jacob Frenkel, head of corporate litigation at Shulman Rogers, told CNBC. "It's almost as if what we're getting out of federal regulators . . . is a roulette wheel or some kind of jackpot, how much can you jack up the fine."

The tentative settlement, with the Justice Department, the New York attorney general and Federal Housing Finance Agency, involves mortgages the bank packaged into securities and sold to investors. Government officials allege the bank misrepresented the quality of the mortgages to investors.

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But Bear Stearns and Washington Mutual made the bulk of the mortgages before being bought by JPMorgan during the financial crisis at the urging of the Treasury Department and Federal Reserve.

Regulators are essentially penalizing JPMorgan for taking over the companies, Frenkel explained.

Is this a government shakedown?

"There's no question the pattern logically leads to that conclusion," he noted.

"This is unfair to Wall Street and unfair to corporate America."

Lacking a nonprosecution agreement, the settlement fails to protect the bank against more criminal investigations or lawsuits, he stated.

"For JPMorgan writing a check of this amount, they should have closure on criminal investigation."

Ongoing legal issues are a thorn in the side, hurting the bank's stock price.

The expected size of the settlement has been increasing, Eric Wasserstrom, bank analyst at SunTrust Robinson Humphrey, told CNBC, saying the market recently anticipated a $4 billion settlement, and then later expected $11 billion.

Still, the $13 billion settlement, he added, is well within the $23 billion the bank has reserved for litigation and legal settlements.

Calling the controversial settlement "a watershed moment in American capitalism," a Wall Street Journal editorial said JPMorgan did the country a favor by hurriedly agreeing to acquire Bear Stearns and Washington Mutual without full due diligence during the financial crisis. The settlement will cause banks to be less willing to work with the government in another crisis, The Journal warned.

Out of the total settlement, $4 billion will go to consumer relief. But if the charges are true, the victims are institutional mortgage buyers, not consumers.

"If instead the feds pass out the money to consumers or their favorite advocacy groups," the Journal says, "the fact that this is a political shakedown and wealth-redistribution scheme becomes even clearer."

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Related Stories:

Investors Weigh JPMorgan's $13B Tentative Settlement Agreement

For JPMorgan, Ending Criminal Probe Proves Impossible for Now

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