The proposed settlement will subsume the Sacramento U.S. attorney’s civil probe, as well as that of federal prosecutors in Philadelphia investigating matters related to Washington Mutual Inc., the person said. The deal would also end a probe of Bear Stearns Cos.-related wrongdoing by the Justice Department’s Washington headquarters. JPMorgan took over operations of both banks during the financial crisis.
The accord would include $4 billion in relief for consumers hit hardest by the housing downturn in regions where JPMorgan has branches, and $9 billion that includes fines and other payments, another person familiar with the matter said.
JPMorgan won’t be penalized for wrongdoing tied to Bear Stearns and WaMu, the person said. Rather, the portions of the settlement related to those institutions will be compensatory.
The penalty portion, a little less than a third of the $9 billion, would be related to JPMorgan legacy loans, the person said.
The first indications that the department’s long criticized efforts were taking shape surfaced in three places. Bank of America Corp. was sued in federal court in Charlotte, North Carolina, on Aug. 6, accused of misleading investors about the quality of loans in $850 million in bond deals.
Two days later, JPMorgan disclosed that it was being civilly and criminally investigated by the U.S. attorney in Sacramento, the criminal probe Dimon and his general counsel, Stephen Cutler, were trying to end in the Sept. 26 talk with Holder, and a lawsuit against Clayton Holdings LLC, Wall Street’s largest due diligence firm, was filed that month, producing a U.S. demand for a turnover of massive amounts of documents about financial clients.
At an Oct. 3 hearing in U.S. District Court in Hartford, Connecticut, three days into the government shutdown that halted federal lawsuits nationwide, Assistant U.S. Attorney Edward Newman complained Clayton was trying to “saw the legs off” of the Justice Department’s probe into mortgage bond sales by refusing to turn over e-mail and client reports covering a three-year period.
For Clayton’s lawyer Marc Rothenberg, it was a shift in tone from a more cooperative arrangement over six years during which prosecutors sought information from his client on a case- by-case basis. As he explained it to the judge in charge of the case, he was suddenly being told by the government: “We want it all, and we want it now.”
Rothenberg said 16 banks were on a list of targets the government gave his client in June. The department is focusing on about half of them, according to a person familiar with the matter -- all financial institutions. Rothenberg and the government refused to publicly identify the banks.
“There will either be cases announced or resolutions announced, I just don’t know which they will be,” West, who oversees the group devoted to probing the sale of residential mortgage-backed securities, said in an interview at the Justice Department’s headquarters last week.