Department of Justice Settling Case with J.P. Morgan

False Claims Act attorney Tony Munter contributed this blog post.

Why would the United States go after the big banks? Same reason Willy Sutton did, that’s where the money is.

Now years after the financial crisis, the Department of Justice is starting to get some real money. J.P. Morgan has apparently agreed to a 13 billion dollar (that’s 13 followed by 9 zeros) settlement for its role in “misdeeds” selling mortgage-backed securities.

No doubt it’s a lot of money.  This follows assurances from the Department of Justice that they will be pursuing banks, as reported by Bloomberg News:

U.S. Attorney General Eric Holder said this month that it is a priority for his department and President Barack Obama to aggressively pursue misdeeds by banks. JPMorgan won’t be penalized for wrongdoing tied to Bear Stearns and WaMu, a person familiar with the talks said. Rather, the portions of the settlement related to those institutions will be compensatory.

This  agreement, massive as it may be, looks like only the start for the big banks. In another article, Bloomberg news reported:

The U.S. plans to use the proposed JPMorgan pact as a model as it seeks other bank accords, using a hybrid of consumer relief and penalties, said the person familiar with the matter.

The Department of Justice has a pretty unusual opportunity.  The banks that are still in business are not particularly popular, but they are financially healthy. Furthermore, additional whistleblower laws make it easier for individuals to come forward with the information needed to find out who is doing what in the world of banking.

The SEC whistleblower office is getting a steady stream of information from inside the financial world.  That office did not even exist at the beginning of the financial crisis, when the acts that apparently will be covered by this latest settlement occurred.

There is nothing that prevents an individual from filing a case under a State False Claims Act if that person has information about a bank that acted in a way to defraud a state pension plan, for example.  Of course, we have also recently seen some prosecution based on international banking as a result of abuses of the so-called “LIBOR” rate.

What really matters about all this is the apparent willingness of the administration to take on the large financial institutions.  Bloomberg news quoted the Attorney General on the Department’s aggressive actions in this area:

“It was clearly a priority for the president, it was a priority for       me and for this Justice Department. One look at the magnitude of harm and the number of people suffering as a result of these acts that we’re looking into made sense to me that my personal involvement was needed.”

Now that whistleblowers see the Department is serious about going after the big banks, it may be that more solid information will become available to Mr. Holder and his colleagues.  It is encouraging to see that the Department is pursuing this line of action.  Somebody with inside information might stand to make a great deal of money from the appropriately filed case or disclosure.  More importantly, it now appears that person may also be supported by an active Department of Justice.