Which is Fraudulent – Bitcoin or JP Morgan?

by Michael Krieger, Liberty Blitzkrieg:

I’m really grateful JP Morgan CEO Jamie Dimon decided to once again lash out in anger at Bitcoin, as it provides us with ample opportunity to highlight a practice very near and dear to how the bank operates. Fraud.

The way the news cycle works, any topic that isn’t already at the forefront of enough people’s minds will be largely ignored irrespective of its importance. The fact that Jamie Dimon ironically called Bitcoin a fraud, allows us to ask highlight some very important facts about the seemingly systemic fraud inherent in America’s largest bank, JP Morgan.

First, let’s take a quick look at some of what Mr. Dimon said. Courtesy of the financial plutocrat network, CNBC:

 

Jamie Dimon has not changed his mind about bitcoin.

Mr. Dimon, the long-time CEO at J.P. Morgan Chase, continued his well-documented criticism of the digital currency bitcoin. Speaking at the Barclays financial services conference on Tuesday, Mr. Dimon was asked whether his bank had a trader who traded bitcoin.

His response? “If we had a trader who traded bitcoin, I’d fire them in a second,” he said. “It’s against our rules” and any trader that deals in them is “stupid.”

Ultimately though, Mr. Dimon said that he thinks Bitcoin is “a fraud” and it “will eventually blow up.” He referenced approvingly the comments of another titan of the traditional markets, Howard Marks, who recently called bitcoin “an unfounded fad.”

Of course he hasn’t changed his mind about Bitcoin, and he never will. As he himself noted back in 2014.

It’s not the first time Dimon has issued a warning about Silicon Valley businesses.

“They all want to eat our lunch,” he told investors a year ago. “Every single one of them is going to try.”

What he once saw as competition, he now seems increasingly terrified of, which is notable in its own right. Beyond that, the most interesting aspect of his recent comments was the use of the word fraud, which provides us with a textbook case of psychological projection. After all, it’s there’s anything Jamie Dimon seems intimately familiar with, it’s fraud.

But don’t take my word for it. Financial journalist and author, William Cohan, wrote an important piece earlier this month for Vanity Fairtitled, Jamie Dimon’s $13 Billion Secret—Revealed. I thought about sharing it when it was published, but ultimately decided it wouldn’t get the traction it deserved. Fortunately, Dimon’s Bitcoin commentary has propelled him into the spotlight long enough to turn your attention to this very important piece. Indeed, you can barely read a single paragraph without coming into contact with the word fraud, not in relation to Bitcoin, but in myriad descriptions of routine practices at JP Morgan.

Here are a few choice excerpts:

In November 2013, JPMorgan Chase, the nation’s largest bank, agreed to pay a then-record $13 billion fine to federal and state authorities in order to settle claims that it had misled investors in the years leading up to the financial crisis. JPMorgan Chase’s settlement raised many eyebrows on Wall Street. The huge settlement appeared inconsistent with the oft-repeated narrative of the bank’s heroism during the crisis…

People wondered why one of Wall Street’s ostensible white knights would pay $13 billion—$9 billion of its shareholders’ cash, plus another $4 billion in mortgage relief—in a government case…

A number of clues about what had forced Dimon’s hand, however, began emerging soon after the conference call. As I reported in The Nation in 2014, JPMorgan Chase’s settlement came at the end of an intense series of negotiations with a wide range of government officials. Perhaps the most pivotal moment in the conversations occurred in September 2013 when D.O.J. lawyers shared with Dimon and his attorneys a draft of a 92-page civil complaint that Benjamin B. Wagner, the then U.S. attorney in the Eastern District of California, and his colleagues were prepared to file in federal court. The draft complaint—based upon hundreds of thousands of subpoenaed internal JPMorgan documents; and interviews with its bankers, employees in its mortgage-backed securities division, and third-party mortgage originator—alleged that the bank’s due-diligence process had been subverted, and ignored, during the years before the crisis. In Wagner’s narrative, the bank was not nearly the white knight of Wall Street.

No one knew precisely what Wagner’s investigation had uncovered about JPMorgan Chase, however, because his brief was never filed publicly. Within weeks of Wagner sharing a draft copy of the complaint with Dimon—and following a tense face-to-face meeting at the Department of Justice between Dimon and Eric Holder, then the U.S. attorney general—the two sides agreed to the $13 billion settlement, at the time the largest ever. (It has since been surpassed by Bank of America’s $16.65 billion fine, settling similar claims.) In return, the Department of Justice agreed with Dimon and JPMorgan Chase that, among other things, it would not file Wagner’s complaint. Instead, an anodyne 11-page “Statement of Facts” was released. But it didn’t offer a tremendous amount of insight.

There’s some banker justice for you.

Wall Street C.E.O.s have many reasons for using their shareholders’ money to settle nettlesome lawsuits—from “optics” and brand preservation, to boosting their stock price and keeping embarrassing facts out of the public’s hands. And in the wake of his bank’s $13 billion settlement, Dimon made clear that he was frustrated that the bank had to settle. At a Microsoft C.E.O. summit, Dimon confessedthat he “had to control his rage” regarding the topic.

To keen observers, though, it also seemed that he and JPMorgan Chase appeared intent on keeping Wagner’s unfiled complaint out of the public record. The specter of the document becoming public was again raised in a separate court case, when, a few weeks after the Department of Justice announced the settlement with JPMorgan Chase, lawyers for the Federal Home Loan Bank of Pittsburgh, which had sued JPMorgan Chase’s investment bank, along with other defendants, alleging it had sold the bank more than $1.7 billion in squirrelly mortgage-backed securities, wanted a copy of Wagner’s complaint. In fact, a state judge in Allegheny County, Pennsylvania, ordered the bank to turn over the draft complaint. But JPMorgan Chase settled the litigation after the judge’s ruling—a settlement that, among other things, included a provision that the draft complaint was to remain private. (Disclosure: after JPMorgan Chase fired me as a managing director in January 2004, I brought—and lost—an arbitration claim against the bank. I also remain in litigation with the bank as the result of a soured investment I made in 1999.)

Now, nearly four years later, as part of a Freedom of Information Act lawsuit initiated by Daniel Novack, an enterprising First Amendment attorney in New York City, the D.O.J. sent Novack a partially redacted copy of Wagner’s curiosity-stoking draft complaint against JPMorgan Chase. Novack provided a copy of the partially redacted complaint to me. “By this action,” the draft complaint begins, “the United States seeks to recover civil penalties” against JPMorgan Chase and its investment banking arm “for a fraudulent and deceptive scheme to package and sell residential mortgage-backed securities” that the bank “knew contained a material amount of materially defective loans.” As the unfiled complaint continued, “JPMorgan knowingly securitized and sold billions of dollars of mortgage loans that were originated in material violation of underwriting guidelines and law.” (When reached for comments and responses to the various allegations in Wagner’s unfiled brief, a spokesperson for JPMorgan Chase told me, “These allegations have been addressed, resolved, or refuted years ago.”)

Perhaps I’m delusional, but I think I saw the word fraud in there somewhere.

Wagner’s unfiled brief catalogs behavior rather at odds with the public narrative about the bank in the years preceding the crisis. It further asserts that JPMorgan Chase knew that “many of these loans were tainted with fraud” and “knowingly misrepresented” that the loans met its underwriting guidelines, even though they clearly did not, and that the loans had sufficient equity value to collateralize the mortgages even though they did not. Notably, Wagner’s complaint argues that “these fraudulent misrepresentations” cost investors “to suffer billions of dollars in losses.”

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