Tuesday was supposed to be the day that the federal government showed it’s getting tougher on Wall Street malefactors. But we just kept getting reminded of how doggedly private lawyers have been hounding the banks at the center of the financial crisis.
At a press conference in Washington, D.C, New York Attorney General Eric Schneiderman and U.S. District Attorney John Cole of Colorado hailed the New York state court suit that Schneiderman’s office filed on Monday, accusing JPMorgan Chase of violating the Martin Act by defrauding investors during the run-up to the subprime meltdown. The AG’s case, which centers on the actions of Bear Stearns before it was acquired by JPMorgan in 2008, is the first to be coordinated by the Residential Mortgage-Backed Securities Working Group–the state and federal task force President Obama unveiled in this year’s State of the Union address.
Cole said in a statement that the case “underscores the strength of the Working Group’s structure, which gives each office and law enforcement team the opportunity to bring unique investigatory and enforcement strengths to the table.” But the AG’s 33-page complaint also underscores just how indebted the government’s case is to the private lawyers who’ve been leading the charge against big banks that issued and underwrote toxic residential mortgage-backed securities.
The filing repeatedly references the 329-page amended complaint against JPMorgan that Quinn Emanuel Urquhart & Sullivan filed for the Federal Housing Finance Agency in June, as part of the FHFA’s litigation blitz against 17 banks. (Kasowitz Benson Friedman & Torres also represents the FHFA in some of the cases.) In a press release issued Tuesday, Schneiderman touted the FHFA’s “key role” in helping to build the case–before mentioning either the Securities and Exchange Commission or the Justice Department’s efforts.
To back the crucial allegation that Bear Stearns abandoned loan underwriting standards, the AG’s complaint cites an analysis of a random sample of securitized home loans that Quinn Emanuel built into the FHFA’s complaint. And there are other, less explicit borrowings from the ongoing FHFA litigation, as well as from the securities class action litigation that plaintiffs lawyers at Bernstein Litowitz Berger & Grossman and Wolf Popper are leading against JPMorgan in New York federal court. There are also clear echoes of the claims that Patterson Belknap Webb & Tyler brought against JPMorgan on behalf of bond insurers, as The Wall Street Journal noted Tuesday.
JPMorgan needled Schniederman over these similarities on Monday, accusing the AG in a statement of “relying on recycled claims already made by private plaintiffs.” (A JPMorgan spokeswoman declined to say who’ll be defending the company against the working group’s claims. We reached out to the bank’s outside counsel in other RMBS litigation–from Sullivan & Cromwell; Greenberg Traurig; Paul, Weiss, Rifkind, Wharton & Garrison; and Sidley Austin–but the firms are keeping mum.)
Lawyers already pressing RMBS claims against JPMorgan declined to discuss any nexus between their cases and Monday’s complaint. However, one lawyer opposed to JPMorgan, who requested anonymity, confirmed that federal authorities have sought guidance from his firm in preparing cases against JPMorgan and other banks.
That’s not exactly a big surprise; indeed it would seem negligent if prosecutors didn’t try to learn from the lawyers who’ve pioneered MBS litigation. But it underlines a key point about the AG’s case that wasn’t really advertised on Tuesday: the government has had plenty of help behind the scenes.