WASHINGTON - The non-profit group Better Markets filed a lawsuit against the Justice Department on Monday to block what it called an "unlawful" $13 billion settlement with JP Morgan Chase (JPM) over bad mortgage loans sold to investors before the financial crisis.
The record settlement with the bank, which was reached in November, does not release JP Morgan from potential criminal liability over the mortgages it packaged into bonds. But Better Markets said it was still appalled that the settlement gave the bank "blanket civil immunity" for its conduct without sufficient judicial review.
"The Wall Street bailouts were bad enough, but now taxpayers are being forced to accept a secretive back-room deal that may well have been another sweetheart deal," said Dennis Kelleher, the chief executive of Better Markets. "The Justice Department cannot act as prosecutor, jury and judge and extract $13 billion in exchange for blanket civil immunity to the largest, richest, most politically connected bank on Wall Street."
The lawsuit was filed in federal court in Washington. Better Markets is asking the court to void the agreement and to bar the Justice Department from enforcing the agreement with JPMorgan until the deal has undergone judicial review.
"The American people deserve, and the law requires, an independent judicial review to determine whether the settlement is fair and whether it can withstand scrutiny in the light of day,” Keller said in a statement.
The Justice Department in November negotiated a wide-ranging deal with JPMorgan that included a $2 billion civil penalty to resolve Department of Justice claims. It also included a $4 billion consumer relief package and a separately negotiated $4 billion settlement with the regulator of Fannie Mae and Freddie Mac. Another $1.4 billion of the $13 billion package also resolved a lawsuit from the National Credit Union Administration.
The settlements stem from mortgage bonds that JPMorgan and other Wall Street banks packaged and sold in the years leading up to the housing bust. The investments soured after many of the loans defaulted or lost value, requiring JPMorgan and other big banks to borrow billions of dollars from the government.
The DOJ settlement was released to the public but not filed in federal court. The agency also did not release a complaint that it had prepared to file against JPMorgan before it negotiated the deal.
Better Markets, a self-described "Wall Street watchdog," focuses on spurring financial reform. Since the 2008 financial crisis, Kelleher has acquired a reputation in policy circles as being among the most pugnacious advocates for revamping the U.S. banking system.