Updated from 12:49 p.m. Feb. 11, with comment from Frank Mayer, a partner in the Financial Services Practice Group of Pepper Hamilton in Philadelphia.
NEW YORK (TheStreet) -- Better Markets is making some excellent points through its lawsuit against the Department of Justice against the unprecedented $13 billion residential mortgage-backed securities settlement JPMorgan Chase (JPM) agreed to in November, but the lawsuit is likely to be thrown out.
The settlement was announced by New York State Attorney General Eric Schneiderman, who heads President Obama's Residential Mortgage-Backed Securities Working Group, which includes representatives from the Justice Department, federal regulators and other states' attorneys general.
The settlement covers all civil claims by government authorities related to residential mortgage-backed securities (RMBS) sales by JPMorgan, Bear Stearns and Washington Mutual before 2009.
JPMorgan acquired Bear Stearns when the investment bank was faced with bankruptcy after its liquidity dried up in March 2008. Washington Mutual failed in September 2008, after which it was sold to JPMorgan by the Federal Deposit Insurance Corp.
As has been the case in most settlements between U.S. authorities and large banks, shareholders wound up taking the losses, while company executives escaped blame.
Better Markets, a nonprofit market watchdog, on Tuesday announced it had sued the Justice Department in federal court in Washington challenging the JPMorgan settlement, saying the agreement was "a mere contract and was not reviewed or approved by any court. And, it gave JP Morgan Chase complete civil immunity for years of alleged pervasive, egregious and knowing fraudulent and illegal conduct, which contributed to the worst financial crash since 1929 and the worst economy since the 1930s." Better Markets didn't mention any law firm filing the suit on its behalf.
Here's more from the press release, holding the Department of Justice to the fire:
Adding insult to injury, this deal was cut in secret by the DOJ and JP Morgan Chase with the DOJ acting as investigator, prosecutor, judge, jury, sentence and collector without any independent review by a judge. This violates the constitutional separation of powers because there are no checks and balances on the back room deals that DOJ cuts with Wall Street.
Making matters worse, the agreement fails to disclose any meaningful information about JP Morgan Chase's alleged widespread illegal conduct. In fact, the deal was clearly carefully crafted more to conceal than reveal. As a result, there is no publicly available information that would enable anyone to determine if the agreement is, as the DOJ claims, tough, or just another sweetheart settlement for a Wall Street bank. Given the DOJ's motive and self-interest in burnishing its record of failure to go after Wall Street, its claims about the settlement must be reviewed by an independent court.
And, don't be fooled by the big dollar amount. Sure, $13 billion is a lot of money, but not to Wall Street, not to JP Morgan Chase, not relative to the amount of damage the financial crash has cost this country, and not if JP Morgan Chase's liability was $200 billion or more, or if its profits from its illegal actions were more than $13 billion or if the losses and damages it caused exceeded $13 billion. But, none of this is known because DOJ settled with JP Morgan Chase without disclosing a single one of those facts.
The American people have a right to know these basic facts and judge for themselves whether the DOJ was really tough and punished the biggest Wall Street bank as it claims or if this is just more of the same from a DOJ that has failed so miserably to enforce the law on Wall Street. That's why we sued DOJ and that's why any settlement must be submitted to a judge for an independent, public review.
OK, there's a lot of great stuff there. JPMorgan shareholders can't be entirely pleased, taking it on the chin to the order of $13 billion through a "secret agreement," and may be wondering if the tab could have been much lower if the Justice Department had followed through with a lawsuit against the bank.
It's also easy to question the motives of any prosecutor, since the job is, by its nature, political and prosecutors are naturally looking to build a record of success as they look further down their career paths.