For $13 billion, JPMorgan Chase & Co. this year inked the largest-ever government settlement with a single company — and enforcers are not done yet as they eye holding big banks accountable for financial industry violations. “The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over,” Attorney General Eric Holder Jr. said.
The U.S. Securities and Exchange Commission isn’t ending the year on a high note, having lost three trials in two months — including the insider-trading case against billionaire Mark Cuban. “I said ‘Screw you SEC. I don’t care who you are,” Cuban told Jay Leno.
Raj Rajaratnam, convicted in one of Wall Street’s biggest insider-trading cases in history, spent the holidays in prison. A federal appeals court upheld the case against him, rejecting his lawyers’ argument that the prosecution marked an expansion of the use of wiretaps.
Thirteen billion dollars is a lot of money — even for JPMorgan Chase & Co. That’s how much the bank paid in 2013 to settle charges stemming from sales of shoddy mortgage-backed securities before the 2008 financial crisis. It was the largest settlement with a single entity in American history.
In announcing the Nov. 19 settlement, Attorney General Eric Holder Jr. blamed the bank for helping “sow the seeds of the mortgage meltdown.”
The money was split between regulators and consumers, including $4 billion to the Federal Housing Finance Agency; $2 billion in DOJ fines; and $1.4 billion to the National Credit Union Administration. Struggling homeowners got $4 billion in relief. The settlement contained a vague admission that the firm misled investors — a concession trumpeted by regulators but that failed through its lack of explicitness to impress many legal analysts. The bank paid another $1 billion or so to settle probes related to the London Whale trading losses. The bank revealed in October it had reserved $23 billion to cover litigation costs. (In 2010, the bank’s legal reserve was $3 billion.)
“We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was best to significantly strengthen them,” chief executive officer Jamie Dimon said at the time.
The U.S. Securities and Exchange Commission ended the year with a thud, losing three trials in two months. The first — and most public — defeat came in the agency’s insider-trading case against billionaire Mark Cuban. A federal jury in Dallas found for Cuban, represented by Fish & Richardson partner Thomas Melsheimer, concluding in October that he did not improperly sell his shares in a Canadian Internet company in 2004.
The owner of the Dallas Mavericks basketball team, Cuban told “Tonight Show” host Jay Leno that he spent $12 million in legal fees “to fight those idiots,” even though he could have gotten off with paying a $2 million fine. “I said ‘Screw you SEC. I don’t care who you are. You’re not going to push me around.’” The remark drew raucous cheers from the studio audience.
Six weeks later, a Kansas jury rejected all 12 of the SEC’s securities fraud claims against the chief financial officer of NIC Inc. The following week, on Dec. 10, a Los Angeles federal judge ruled against every claim in the SEC’s 57-page accounting fraud complaint against two former executives from a water treatment company.
When American Airlines and U.S. Airways announced their $11 billion merger in February, few anticipated serious antitrust issues — after all, mergers by other legacy carriers encountered little turbulence. But that was before William Baer’s tenure as head of the Justice Department’s Antitrust Division. In August, the DOJ sued to block the deal, which Baer said “would result in U.S. consumers paying higher fares, higher fees and receiving less service.” The airlines hit back hard, hiring a dream team of antitrust lawyers from firms including Jones Day, Dechert and O’Melveny & Myers, who called the DOJ’s complaint “quaint,” “misleading” and an “imaginary narrative.” With less than two weeks before trial, the parties settled in November. The airlines agreed to give up takeoff and landing slots and gates at seven major airports, including Washington Reagan National, in a deal Baer said provided more relief than if the merger had been blocked.
Breach of contract suits over the government’s failure to accept storage of high-level nuclear waste cost taxpayers hundreds of millions of dollars in judgments and settlements this year, including $82 million to Maine Yankee Atomic Electric Co.; $70 million to Portland General Electric Co.; and $48 million to System Fuels Inc. “It’s a big cost for taxpayers as far as the eye can see,” said Hogan Lovells energy partner Mary Anne Sullivan. Government lawyers have “been handed an impossible legal task.” The U.S. Court of Appeals for the D.C. Circuit in November ordered the government to quit collecting annual fees from nuclear power plant owners for the disposal of radioactive waste until the feds come up with a viable plan for storing the material.
IT’S A BIRD, IT’S A PLANE, IT’S THE U.S. TRADE REPRESENTATIVE
For a time this summer, things looked grim for Apple Inc. In June, the company lost a patent infringement case before the U.S. International Trade Commission, which ruled that certain iPhones and iPads used technology that belonged to Samsung Electronics Co. The ITC ordered customs agents to block all infringing Apple devices at the border. But then U.S. Trade Representative Michael Froman swooped down to the rescue. For the first time since 1987 — and only the sixth time ever — the trade representative, acting on the president’s behalf, intervened in an ITC decision, overturning the exclusion order. In an Aug. 3 letter, Froman cited “substantial concerns, which I strongly share” about giving too much leverage to companies like Samsung Electronics when asserting standard-essential patents.
DOJ V. THE PRESS
Criticism of the U.S. Department of Justice’s increased prosecution of leak cases took a twist in May when the Associated Press revealed that authorities obtained two months of phone records from its reporters and editors. The AP called it a “massive and unprecedented intrusion” into newsgathering. Days later, reports surfaced that the government had obtained a search warrant to inspect a Fox News reporter’s email. In July, responding to concern among news organizations, Attorney General Eric Holder Jr. announced revisions to his department’s media guidelines. They included giving advance notice to the press about any subpoena involving information about reporting. “The Department of Justice is firmly committed to ensuring our nation’s security, and protecting the American people, while at the same time safeguarding the freedom of the press,” Holder said.
Millions of employers across the country use criminal background and credit checks to screen job applicants. In two cases, the U.S. Equal Employment Opportunity Commission took aim at the practice, alleging a disparate impact on some minorities. In January, a federal judge in Ohio tossed the EEOC’s suit against education company Kaplan Inc., and in August, a Maryland judge did the same in the agency’s case against Freeman Cos. “A theory in search of facts to support it,” is how U.S. District Judge Roger Titus of the District of Maryland described the case, pointing to a “mind-boggling number of errors” in data from the agency’s expert. Both cases are on appeal. Two other EEOC cases against Dollar General Corp. and BMW are pending in district courts.
After two years in regulatory limbo, the Consumer Financial Protection Bureau got its first official director when the Senate in June confirmed Richard Cordray, 66-34. It was no mere formality: The Dodd-Frank Act limits the agency’s powers unless a Senate-confirmed director is in place. That didn’t end the legal challenges, which critics claim lacks checks and balances. The first case — now on appeal — by a small Texas bank was dismissed for lack of standing.
A second challenge, by Morgan Drexen Inc., is pending in federal court in California. The bureau has accused the company, which works with law firms to provide debt-relief services to consumers, of charging illegal fees. The company replies that the CFPB is “a super agency uniquely insulated from political accountability” whose structure violates the Constitution.
WALL STREET WIRETAP
Hedge fund billionaire Raj Rajaratnam’s top-flight lawyers — including Akin Gump Strauss Hauer & Feld partner Patricia Millett — couldn’t convince a federal appeals court to undo the longest prison sentence yet imposed for insider trading. The U.S. Court of Appeals for the Second Circuit on June 24 upheld Rajaratnam’s conviction — and 11-year prison term — in the face of a challenge rooted in wiretap evidence. Millett said the ruling “involves a significant expansion of the use of wiretaps,” but the en banc Second Circuit refused to review the case. It marked another notch in the belt for U.S. Attorney Preet Bharara and Assistant U.S. Attorney Andrew Fish, who argued the appeal. Fish in April joined Locke Lord in New York as a partner in the white-collar and internal investigations practice.
FAST & FURIOUS
There’s no quick escape for the Justice Department from the flap over Operation Fast and Furious, a botched gun sting in which federal agents allowed firearms to flow into Mexico. In October, U.S. District Judge Amy Berman Jackson refused to throw out the lawsuit the House Committee on Oversight and Government Reform filed to try to squeeze documents from Main Justice.
Jackson didn’t get to the merits of whether the House — which held Holder in contempt in 2012 over Fast and Furious — is entitled to the information. But she rejected the government’s argument that she has no say in the dispute. “In the Court’s view, endorsing the proposition that the executive may assert an unreviewable right to withhold materials from the legislature would offend the Constitution more than undertaking to resolve the specific dispute that has been presented here,” Jackson wrote. The case could be headed to the U.S. Court of Appeals for the D.C. Circuit in the new year.