Advocacy group, Better Markets, filed suit in federal district court today to challenge the settlement between JPMorgan and the Department of Justice last November related to JPMorgan's crisis-era sales of residential mortgage-backed securities. The complaint alleges that the DOJ violated the law when it entered into a settlement that was shielded from judicial review and the details of which remain a mystery. As Better Markets paints it, the deal was negotiated by a politically connected bank with a department officials scrambling to show themselves tough on too big to fail institutions. The complaint suggests that the large settlement numbers served as a smoke screen to conceal DOJ's gentle slap on JPMorgan's brutish wrist. Better Markets, itself a confidant of regulators, likely overstates DOJ's deference in this matter, but correctly points out the settlement's troubling lack of transparency. When it was announced, I objected that the settlement's large dollar figures were not accompanied by any clear explanation of the violations being punished.
Better Markets concludes that DOJ had evidence of the bad conduct, but hid it from the public in order to go easy on JPMorgan. An alternate interpretation is that DOJ did not want to have to explain to a judge that it lacked the facts to support specific legal violations that would warrant a $13 billion settlement. Either way, because DOJ did not file a case, the government will never be subject even to the cursory scrutiny that courts usually give settled cases. If, as Better Markets alleges, the JPMorgan arrangement is a template for future settlements, there is even more cause for concern.
The Better Markets complaint raises important questions about the way in which DOJ pursues wrongdoers. If the government has a good, legally sound case to make, it should not need to proceed--as Better Markets alleged it did in this matter--"as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions."