Wednesday, October 23, 2013

Is the JPMorgan Settlement a Template for Other Bank Settlements?

J.P. Morgan Chase’s settlement is just a template for more settlements on Wall Street. According to an article at MarketWatch, the Justice Department is planning to use the reported $13 billion settlement with J.P. Morgan as a blueprint for other similar settlements. 

The deal to settle investigations by prosecutors into the firm’s issuance of bad mortgage investments to investors before the financial crisis could just be the start of many large settlements in the banking industry. The Justice Department plans to use a 1980s law which carries a lower burden of proof and gives prosecutors 10 years, instead of the standard 5 years, to pursue these cases. Some of the settlement money would have to go directly to struggling consumers, under the new model.

J.P. Morgan has been accused of selling troubled mortgage securities, many of which originated from its acquisitions of Bear Stearns and Washington Mutual. Almost every major Wall Street firm issued similar mortgage securities before the crisis and could become targets under this new approach by prosecutors. 

When the housing boom crashed five years ago, investors lost billions on their investments and the banks were accused of intentionally selling bad mortgages. Now five years later, banks, including Bank of America Corp. and Citigroup, have been saddled with ongoing litigation from the regulators, prosecutors, states and investors.

This switch in prosecution theories, which effectively extends the statute of limitations, will undoubtedly result in longer investigations, and more uncertainty for targets and potential targets of those investigations.

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