Bloomberg News

JPMorgan Deal Offers Turning Point for Attorney General Holder

November 21, 2013

The Justice Department’s $13 billion mortgage securities settlement with JPMorgan Chase & Co. (JPM:US) is a record and also a rarity -- Attorney General Eric Holder’s first big win against a bank at the heart of 2008’s financial crisis.

For Holder, the part of the deal announced this week that requires the bank to pay $9 billion to resolve allegations it knowingly sold bad mortgage securities is a potential turning point after a tenure studded with controversy. 

Several more announcements are on the way to bring financial institutions to account, Holder has said.

“You have to wait until we are finished with all the work that we will do,” Holder said in an interview. “When we get to that point you will see that we have taken the mandate that we were given seriously, that we held people accountable, that we held institutions accountable.”

The JPMorgan deal has its critics. Some say it’s too tough on the bank after the government called it in to take over Bear Stearns Cos. and Washington Mutual Bank when they failed. Others say Holder hasn’t gone far enough, because he hasn’t brought criminal charges against bankers. Several lawmakers and others have faulted the deal for leaving open the possibility that the bank could write off a portion of the penalties, essentially passing some of the burden to taxpayers.

McCain’s Concern

“I remain concerned that individuals at the bank who may have committed a crime may never be held responsible,” Arizona Republican Senator John McCain said yesterday, adding that he continued to seek clarification from Holder over the tax issue. The Justice Department has said that $2 billion of the overall settlement won’t be tax deductible.

Still, Holder is being praised for taking a personal hand in talks that yielded the government’s biggest penalty against a single entity, leaving the door open for later criminal prosecutions against JPMorgan or its employees and laying the groundwork for resolving probes of other banks.

“The JPM settlement should be considered a significant accomplishment for the Holder Justice Department,” said Robert Shapiro, a political science professor at Columbia University who specializes in partisan conflict, public opinion and polling.

That marks a sharp shift in momentum from just three months ago, when Holder, embattled after 4 1/2 years as the nation’s top lawyer, had had a talk with President Barack Obama about how long he’d stay in the job.

Sept. 11 Plot

While Holder’s department had logged several successes, his plan to try accused 9/11 plotter Khalid Sheikh Mohammed in a civilian court had been defeated by Congress. He was the first sitting cabinet member to be held in contempt by lawmakers when House Republicans accused him of refusing to turn over information on his department’s botched Fast and Furious probe. He angered Democrats and Republicans alike over his department’s secret subpoena of Associated Press phone records in an investigation of leaks.

By the time Holder traveled to Martha’s Vineyard in August for a vacation alongside Obama, his staff had stopped putting anything on his calendar beyond December, said two people close to him who asked not to be identified because they weren’t authorized to discuss the matter.

When the topic of tenure came up, the president, who met Holder at a dinner party nine years ago, encouraged him to remain into 2014, the two people said. The additional time, they said, will let Holder see through initiatives begun on his watch.

Presidential Priority

Holder has said the issue that currently stands to shape his legacy -- the push to hold banks accountable for events leading to the financial crisis -- is one of the president’s priorities.

Other initiatives include re-examining the severity of punishments for nonviolent crimes, and defending against voter identification laws that Holder argues are meant to keep minorities from polling places. Holder, America’s first black attorney general, has said such concerns are an outgrowth of his experience coming of age in the 1960s and serving as a Superior Court judge in Washington, starting in the late 1980s.

Holder, 62, grew up in Queens, New York, and graduated from Columbia University before spending three of his almost four decades as a lawyer working for the federal government. He joined the Justice Department in 1976 as a prosecutor in the Public Integrity Section, which was started in the wake of the Watergate scandal to combat political corruption.

Swimming Pool

He traveled the country prosecuting government officials. He secured the conviction of Robert Hurwitch, the former U.S. ambassador to the Dominican Republic in 1979, for using $17,000 in embassy supplies and labor to build a swimming pool at his home outside Santo Domingo.

After Holder was confirmed as attorney general in 2009, one of his first tasks was dealing with the fallout from his old integrity section’s handling of a corruption case brought against Ted Stevens, an Alaska Republican senator for 40 years. A review of the case showed the prosecution team had withheld evidence from the lawmaker’s defense.

The day after the Stevens case was dismissed, Holder visited the Washington court where the trial had been held. Speaking at a swearing-in ceremony for federal prosecutors, he told them their job wouldn’t be to convict people or to win cases. “Your job is to do justice. Your job is in every case, every decision that you make, to do the right thing,” Holder told the new prosecutors, according to the Associated Press.

Ted Stevens

Stevens’s lawyer, Brendan Sullivan Jr. of Williams & Connolly LLP, said it was the most powerful statement he’s heard a law-enforcement officer make about how things should be done. “It set a tone,” Sullivan said in an interview.

Holder was quickly tested by the lingering issue of where to try Khalid Sheikh Mohammed, or KSM, who was being held in Guantanamo Bay with others accused of being involved in the Sept. 11, 2001, attacks, since his capture in Pakistan six years earlier.

For months, Holder presided over weekly meetings with department and military officials in which he sought “granular side-by-side comparisons of the pros and cons” of trying the case in a federal court as opposed to a military tribunal, said Neil MacBride, the former U.S. attorney in Alexandria, Virginia. He said Holder was seeking the venue where he could make the strongest case.

“It was not based on some ‘Let’s win the hearts and minds of people around the world,’” MacBride said. “It was a thousand-yard, clear-minded assessment of where can the best case be presented.”

Terrorism Trials

Holder wanted to have the trials in federal court in Manhattan, where most of the victims had been. Republican lawmakers criticized Holder for giving foreign-born terrorists U.S. rights in a courtroom. Democratic lawmakers claimed the trials would be too dangerous. The White House withdrew its support.

“The attorney general is in the center of most controversial decisions. You’re going to be in the hot seat,” said former Attorney General Alberto Gonzales, who resigned during the George W. Bush administration over a political scandal involving the firing of U.S. attorneys. “You need to have a tough skin.”

Despite the controversies, Holder’s Justice Department secured BP Plc (BP/)’s agreement to pay $4.5 billion to end criminal charges and resolve securities claims related to the worst U.S. offshore oil spill. This month, Johnson & Johnson (JNJ:US) agreed to pay more than $2.2 billion to resolve criminal and civil probes into the marketing of Risperdal, an antipsychotic drug, and other medicines.

Financial Crisis

Holder’s department came under particular pressure from Democrats and Republicans in Congress for a lack of significant prosecutions relating to the financial crisis. The Justice Department lost its 2009 criminal case against two Bear Stearns hedge-fund managers accused of misleading investors about the health of their funds.

In probes against former American International Group Inc. executive Joseph Cassano and Angelo Mozilo, former chief executive officer of mortgage lender Countrywide Financial Corp., prosecutors concluded there wasn’t enough evidence to bring charges, people familiar with the matter have said.

In the absence of criminal cases against individuals, the department looked to take civil action against institutions, in part after Obama promised in his 2012 State of the Union address to take a tougher line on banks.

Mortgage Probe

This spring, Holder became personally involved in a group created by the president to look at mortgage-backed securities - - ordering prosecutors to put together a set of cases that could be brought to court quickly.

“The attorney general has been absolutely clear these are high-priority cases for him and he wants us to make sure that they are not shortchanged in any way,” Associate Attorney General Tony West said in an interview last month.

From that effort sprung the Nov. 19 JPMorgan settlement. About eight other banks, including Wells Fargo & Co. (WFC:US) and Bank of America (BAC:US) Corp., are among those being investigated over mortgage bond sales, people familiar with the matters have said.

The prospect of high-dollar settlements hasn’t silenced critics. Holder wants “a big settlement that you can brag about and prove your critics wrong,” said Dennis Kelleher, president of Washington-based advocacy group Better Markets. “Just because it’s a big number doesn’t mean it’s fair, adequate and reasonable,” Kelleher said.

Holder’s Legacy

Former Senator Ted Kaufman, a Delaware Democrat who had sponsored legislation that gave law enforcement agencies $30 million to investigate the financial crisis, said the settlement would bolster Holder’s legacy, with a caveat.

“You just have to ask why’s it taken five years before we get to this case and still nobody’s gone to jail,” Kaufman said. “How can you have a $13 billion settlement and nobody that committed fraud?”

Holder defends his department’s approach as a way to appropriately penalize those institutions.

“You can’t put a corporation in jail,” Holder said in the interview, in October. “The way you punish a corporation and deter conduct like that in the future is to extract from that institution monetary funds -- sums of money.”

Those who have worked with Holder say he has shown restraint by not attempting to deliver the scalp of a banker in the absence of a solid case just to appease public sentiment. MacBride, the former U.S. attorney, said the JPMorgan settlement showed that Holder worked in a “thoughtful, intentional way that took the long view.

‘Vindicates’ AG

‘‘On a lot of levels, it vindicates the AG,’’ MacBride said.

Some of Holder’s biggest critics gave the deal a conditional nod.

‘‘When you do your job and do what you’re supposed to do, I think that’s a good thing,” said Representative Ted Yoho, a Florida Republican who this month called for Holder’s impeachment. “That’s what he’s paid for, so we expect that out of him.”

White House Counsel Kathryn Ruemmler, who works closely with Holder on national security and other priorities, said he isn’t looking to end on a high note as much as he is to finish what he started.

“Eric has been in enough difficult jobs at this point, including this one, where he understands that the highs and the lows of what this town thinks -- who is up and who is down -- is completely irrelevant,” Ruemmler said. “That’s what he’s saying when he says history will judge.”

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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  • JPM
    (JPMorgan Chase & Co)
    • $59.45 USD
    • 0.29
    • 0.49%
  • JNJ
    (Johnson & Johnson)
    • $103.73 USD
    • 0.78
    • 0.75%
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