She tried to stay quiet,
she really did. But after eight years of keeping a heavy secret, the day
came when Alayne Fleischmann couldn't take it anymore.
"It was like watching an old lady get mugged on the street," she says. "I thought, 'I can't sit by any longer.'"
Fleischmann is a tall, thin, quick-witted securities lawyer in her
late thirties, with long blond hair, pale-blue eyes and an infectious
sense of humor that has survived some very tough times. She's had to
struggle to find work despite some striking skills and qualifications, a
common symptom of a not-so-common condition called being a
whistle-blower.
Fleischmann is the central witness in one of the biggest cases of
white-collar crime in American history, possessing secrets that JPMorgan
Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion
as regularly reported – more on that later) to keep the public from
hearing.
Back in 2006, as a deal manager at the gigantic bank, Fleischmann
first witnessed, then tried to stop, what she describes as "massive
criminal securities fraud" in the bank's mortgage operations.
Thanks to a confidentiality agreement, she's kept her mouth shut
since then. "My closest family and friends don't know what I've been
living with," she says. "Even my brother will only find out for the
first time when he sees this interview."
Six years after the crisis that cratered the global economy, it's not
exactly news that the country's biggest banks stole on a grand scale.
That's why the more important part of Fleischmann's story is in the
pains Chase and the Justice Department took to silence her.
She was blocked at every turn: by asleep-on-the-job regulators like
the Securities and Exchange Commission, by a court system that allowed
Chase to use its billions to bury her evidence, and, finally, by
officials like outgoing Attorney General Eric Holder, the chief
architect of the crazily elaborate government policy of surrender,
secrecy and cover-up. "Every time I had a chance to talk, something
always got in the way," Fleischmann says.
This past year she watched as Holder's Justice Department struck a
series of historic settlement deals with Chase, Citigroup and Bank of
America. The root bargain in these deals was cash for secrecy. The banks
paid big fines, without trials or even judges – only secret
negotiations that typically ended with the public shown nothing but
vague, quasi-official papers called "statements of facts," which were
conveniently devoid of anything like actual facts.
Jamie Dimon
(Photo: Bloomberg/Getty)
And now, with Holder about to leave office and his Justice Department
reportedly wrapping up its final settlements, the state is effectively
putting the finishing touches on what will amount to a sweeping,
industrywide effort to bury the facts of a whole generation of Wall
Street corruption. "I could be sued into bankruptcy," she says. "I could
lose my license to practice law. I could lose everything. But if we
don't start speaking up, then this really is all we're going to get: the
biggest financial cover-up in history."
Alayne Fleischmann grew up in Terrace,
British Columbia, a snowbound valley town just a brisk 18-hour drive
north of Vancouver. She excelled at school from a young age, making her
way to Cornell Law School and then to Wall Street. Her decision to go
into finance surprised those closest to her, as she had always had more
idealistic ambitions. "I helped lead a group that wrote briefs to the
Human Rights Chamber for those affected by ethnic cleansing in
Bosnia-Herzegovina," she says. "My whole life prior to moving into
securities law was human rights work."
But she had student loans to pay off, and so when Wall Street came
knocking, that was that. But it wasn't like she was dragged into high
finance kicking and screaming. She found she had a genuine passion for
securities law and felt strongly she was doing a good thing. "There was
nothing shady about the field back then," she says. "It was very
respectable."
In 2006, after a few years at a white-shoe law firm, Fleischmann
ended up at Chase. The mortgage market was white-hot. Banks like Chase,
Bank of America and Citigroup were furiously buying up huge pools of
home loans and repackaging them as mortgage securities. Like soybeans in
processed food, these synthesized financial products wound up in
everything, whether you knew it or not: your state's pension fund,
another state's workers' compensation fund, maybe even the portfolio of
the insurance company you were counting on to support your family if you
got hit by a bus.
As a transaction manager, Fleischmann functioned as a kind of
quality-control officer. Her main job was to help make sure the bank
didn't buy spoiled merchandise before it got tossed into the meat
grinder and sold out the other end.
A few months into her tenure, Fleischmann would later testify in a
DOJ deposition, the bank hired a new manager for diligence, the group in
charge of reviewing and clearing loans. Fleischmann quickly ran into a
problem with this manager, technically one of her superiors. She says he
told her and other employees to stop sending him e-mails. The
department, it seemed, was wary of putting anything in writing when it
came to its mortgage deals.
"I could lose everything. But if we don't start speaking up, we're going to get the biggest financial cover-up in history."
"If you sent him an e-mail, he would actually come out and yell at
you," she recalls. "The whole point of having a compliance and diligence
group is to have policies that are set out clearly in writing. So to
have exactly the opposite of that – that was very worrisome." One former
high-ranking federal prosecutor said that if he were taking a criminal
case to trial, the information about this e-mail policy would be
crucial. "I would begin and end my opening statement with that," he
says. "It shows these people knew what they were doing and were trying
not to get caught."
In late 2006, not long after the "no e-mail" policy was implemented,
Fleischmann and her group were asked to evaluate a packet of home loans
from a mortgage originator called GreenPoint that was collectively worth
about $900 million. Almost immediately, Fleischmann and some of the
diligence managers who worked alongside her began to notice serious
problems with this particular package of loans.
For one thing, the dates on many of them were suspiciously old.
Normally, banks tried to turn loans into securities at warp speed. The
idea was to go from a homeowner signing on the dotted line to an
investor buying that loan in a pool of securities within two to three
months. Thus it was a huge red flag to see Chase buying loans that were
already seven or eight months old.
What this meant was that many of the loans in the GreenPoint deal had
either been previously rejected by Chase or another bank, or were what
are known as "early payment defaults." EPDs are loans that have already
been sold to another bank and have been returned after the borrowers
missed multiple payments. That's why the dates on them were so old.
In other words, this was the very bottom of the mortgage barrel. They
were like used cars that had been towed back to the lot after throwing a
rod. The industry had its own term for this sort of loan product:
scratch and dent. As Chase later admitted, it not only ended up
reselling hundreds of millions of dollars worth of those crappy loans to
investors, it also sold them in a mortgage pool marketed as being above
subprime, a type of loan called "Alt-A." Putting scratch-and-dent loans
in an Alt-A security is a little like putting a fresh coat of paint on a
bunch of junkyard wrecks and selling them as new cars. "Everything that
I thought was bad at the time," Fleischmann says, "turned out to be a
million times worse." (Chase declined to comment for this article.)
When Fleischmann and her team reviewed random samples of the loans,
they found that around 40 percent of them were based on overstated
incomes – an astronomically high defect rate for any pool of mortgages;
Chase's normal tolerance for error was five percent. One mortgage in
particular that sticks out in Fleischmann's mind involved a manicurist
who claimed to have an annual income of $117,000. Fleischmann figured
that even working seven days a week, this woman would have needed to
work 488 days a year to make that much. "And that's with no
overhead," Fleischmann says. "It wasn't possible."
But when she and others raised objections to the toxic loans,
something odd started happening. The number-crunchers who had been
complaining about the loans suddenly began changing their reports. The
process she describes is strikingly similar to the way police obtain
false confessions: The interrogator verbally abuses the target until he
starts producing the desired answers. "What happened," Fleischmann
says, "is the head diligence manager started yelling at his team,
berating them, making them do reports over and over, keeping them late
at night." Then the loans started clearing.
Related
As late as December 11th, 2006, diligence managers had marked a full
33 percent of one loan sample as "stated income unreasonable for
profession," meaning that it was nearly inevitable that there would be a
high number of defaults. Several high-ranking executives were copied on
this report.
Then, on December 15th, a Chase sales executive held a lengthy
meeting with reps from GreenPoint and the diligence team to examine the
remaining loans in the pool. When they got to the manicurist,
Fleischmann remembers, one of the diligence guys finally caved under the
pressure from the sales executive. "He had his hands up and just
said, 'OK,' and he cleared it," says Fleischmann, adding that he was
shaking his head "no" even as he was saying yes. Soon afterward, the
error rate in the pool had magically dropped below 10 percent – a
threshold that itself had just been doubled to clear the way for this
deal.
After that meeting, Fleischmann testified, she approached a managing
director named Greg Boester and pleaded with him to reconsider. She says
she told Boester that the bank could not sell the high-risk loans as
low-risk securities without committing fraud. "You can't securitize
these loans without special disclosure about what's wrong with
them," Fleischmann told him, "and if you make that disclosure, no one
will buy them."
A former Olympic ski jumper, Boester was such an important executive
at Chase that when he later defected to the Chicago-based hedge fund
Citadel, Dimon cut off trading with Citadel in retaliation. Boester
eventually returned to Chase and is still there today despite his role
in this affair.
This moment illustrates the most basic element of the case against
Chase: The bank knowingly peddled products stuffed with scratch-and-dent
loans to investors without disclosing the obvious defects with the
underlying loans.
Years later, in its settlement with the Justice Department, Chase
would admit that this conversation between Fleischmann and Boester took
place (though neither was named; it was simply described as "an
employee . . . told . . . a managing director") and that her warning was
ignored when the bank sold those loans off to investors.
Photo: Illustration by Victor Juhasz
A few weeks later, in early 2007, she sent a long letter to another
managing director, William Buell. In the letter, she warned Buell of the
consequences of reselling these bad loans as securities and gave
detailed descriptions of breakdowns in Chase's diligence process.
Fleischmann assumed this letter, which Chase lawyers would later
jokingly nickname "The Howler" after the screaming missive from the
Harry Potter books,
would be enough to force the bank to stop selling the bad loans. "It
used to be if you wrote a memo, they had to stop, because now there's
proof that they knew what they were doing," she says. "But when the
Justice Department doesn't do anything, that stops being a deterrent. I
just didn't know that at the time."
In February 2008, less than two years after joining the bank,
Fleischmann was quietly dismissed in a round of layoffs. A few months
later, proof would appear that her bosses knew all along that the
boom-era mortgage market was rotten. That September, as the market was
crashing, Dimon boasted in a ball-washing
Fortune article
titled "Jamie Dimon's SWAT Team" that he knew well before the meltdown
that the subprime market was toast. "We concluded that underwriting
standards were deteriorating across the industry." The story tells of
Dimon ordering Boester's boss, William King, to dump the bank's subprime
holdings in October 2006. "Billy," Dimon says, "we need to sell a lot
of our positions. . . . This stuff could go up in smoke!"
In other words, two full months before the bank rammed through the
dirty GreenPoint deal over Fleischmann's objections, Chase's CEO was
aware that loans like this were too dangerous for Chase itself to own.
(Though Dimon was talking about subprime loans and GreenPoint was
technically an Alt-A pool, the
Fortune story shows that upper management had serious concerns about industry-wide underwriting problems.)
The ordinary citizen who is the target of a
government investigation cannot pick up the phone, call the
prosecutor and have his case dropped. But Dimon did just that.
In January 2010, when Dimon testified before the Financial Crisis
Inquiry Commission, he told investigators the exact opposite story,
portraying the poor Chase leadership as having been duped, just like the
rest of us. "In mortgage underwriting," he said, "somehow we just
missed, you know, that home prices don't go up forever."
When Fleischmann found out about all of this years later, she was
shocked. Her confidentiality agreement at Chase didn't bar her from
reporting a crime, but the problem was that she couldn't prove that
Chase had committed a crime without knowing whether those bad loans had
been sold.
As it turned out, of course, Chase was selling those rotten dog-meat
loans all over the place. How bad were they? A single lawsuit by a
single angry litigant gives some insight. In 2011, Chase was sued over
massive losses suffered by a group of credit unions. One of them had
invested $135 million in one of the bank's mortgage--backed securities.
About 40 percent of the loans in that deal came from the GreenPoint
pool.
The lawsuit alleged that in just the first year, the security
suffered $51 million in losses, nearly 50 times what had been projected.
It's hard to say how much of that was due to the GreenPoint loans. But
this was just one security, one year, and the losses were in the tens of
millions. And Chase did deal after deal with the same methodology. So
did most of the other banks. It's theft on a scale that blows the mind.
In the spring of 2012, Fleischmann,
who'd moved back to Canada after leaving Chase, was working at a law
firm in Calgary when the phone rang. It was an investigator from the
States. "Hi, I'm from the SEC," he said. "You weren't expecting to hear
from me, were you?"
A few months earlier, President Obama, giving in to pressure from the
Occupy movement and other reformers, had formed the Residential
Mortgage-Backed Securities Working Group. At least superficially, this
was a serious show of force against banks like Chase. The group would
operate like a kind of regulatory Justice League, combining the
superpowers of investigators from the SEC, the FBI, the IRS, HUD and a
host of other federal agencies. It included noted anti-corruption-
investigator and New York Attorney General Eric Schneiderman, which gave
many observers reason to hope that finally something would be done
about the crimes that led to the crash. That makes the fact that the
bank would skate with negligible cash fines an even more extra-ordinary
accomplishment.
New York Attorney General Eric Schneiderman (L) speaks whille
Attorney General Eric Holder listens during a news conference at the
Justice Department on January 27th, 2012.
(Photo: Mark Wilson/Getty)
By the time the working group was set up, most of the applicable
statutes of limitations had either expired or were about to expire. "A
conspiratorial way of looking at it would be to say the state waited far
too long to look at these cases and is now taking its sweet time
investigating, while the last statutes of limitations run out," says
famed prosecutor and former New York Attorney General Eliot Spitzer.
It soon became clear that the SEC wasn't so much investigating
Chase's behavior as just checking boxes. Fleischmann received no
follow-up phone calls, even though she told the investigator that she
was willing to tell the SEC everything she knew about the systemic fraud
at Chase. Instead, the SEC focused on a single transaction involving a
mortgage company called WMC. "I kept trying to talk to them about
GreenPoint," Fleischmann says, "but they just wanted to talk about that
other deal."
The following year, the SEC would fine Chase $297 million for
misrepresentations in the WMC deal. On the surface, it looked like a
hefty punishment. In reality, it was a classic example of the piecemeal,
cherry-picking style of justice that characterized the post-crisis
era. "The kid-gloves approach that the DOJ and the SEC take with Wall
Street is as inexplicable as it is indefensible," says Dennis Kelleher
of the financial reform group Better Markets, which would later file
suit challenging the Chase settlement. "They typically charge only one
offense when there are dozens. It would be like charging a serial
murderer with a single assault and giving them probation."
Soon Fleischmann's hopes were raised
again. In late 2012 and early 2013, she had a pair of interviews with
civil litigators from the U.S. attorney's office in the Eastern District
of California, based in Sacramento.
One of the ongoing myths about the financial crisis is that the
government is outmatched by the legal talent representing the banks. But
Fleischmann was impressed by the lead attorney in her case, a litigator
named Richard Elias. "He sounded like he had been a securities lawyer
for 10 years," she says. "This actually looked like his idea of fun –
like he couldn't wait to run with this case."
She gave Elias and his team detailed information about everything
she'd seen: the edict against e-mails, the sabotaging of the diligence
process, the bullying, the written warnings that were ignored, all of
it. She assumed that it wouldn't be long before the bank was hauled into
court.
Related
Instead, the government decided to help Chase bury the evidence. It
began when Holder's office scheduled a press conference for the morning
of September 24th, 2013, to announce sweeping civil-fraud charges
against the bank, all laid out in a detailed complaint drafted by the
U.S. attorney's Sacramento office. But that morning the presser was
suddenly canceled, and no complaint was filed. According to later news
reports, Dimon had personally called Associate Attorney General Tony
West, the third-ranking official in the Justice Department, and asked to
reopen negotiations to settle the case out of court.
It goes without saying that the ordinary citizen who is the target of
a government investigation cannot simply pick up the phone, call up the
prosecutor in charge of his case and have a legal proceeding canceled.
But Dimon did just that. "And he didn't just call the prosecutor, he
called the prosecutor's boss," Fleischmann says. According to
The New York Times, after
Dimon had already offered $3 billion to settle the case and was turned
down, he went to Holder's office and upped the offer, but apparently not
by enough.
A few days later, Fleischmann, who had by then moved back to Vancouver and was looking for work, was at a mall when she saw a
Wall Street Journal headline
on her iPhone: JPMorgan Insider Helps U.S. in Probe. The story said
that the government had a key witness, a female employee willing to
provide damaging testimony about Chase's mortgage operations.
Fleischmann was stunned. Until that moment, she had no idea that she was
a major part of the government's case against Chase. And worse, nobody
had bothered to warn her that she was about to be effectively outed in
the newspapers. "The stress started to build after I saw that news," she
says. "Especially as I waited to see if my name would come out and I
watched my job possibilities evaporate."
Fleischmann later realized that the government wasn't interested in
having her testify against Chase in court or any other public forum.
Instead, the Justice Department's political wing, led by Holder,
appeared to be using her, and her evidence, as a bargaining chip to
extract more hush money from Dimon. It worked. Within weeks, Dimon had
upped his offer to roughly $9 billion.
In late November, the two sides agreed on a settlement deal that
covered a variety of misbehaviors, including the fraud that Fleischmann
witnessed as well as similar episodes at Washington Mutual and Bear
Stearns, two companies that Chase had acquired during the crisis (with
federal bailout aid). The newspapers and the Justice Department
described the deal as a "$13 billion settlement," hailing it as the
biggest white-collar regulatory settlement in American history. The deal
released Chase from civil liability. And, in what was described by
The New York Times as
a "major victory for the government," it left open the possibility
that the Justice Department could pursue a further criminal
investigation against the bank.
But the idea that Holder had cracked down on Chase was a carefully
contrived fiction, one that has survived to this day. For starters, $4
billion of the settlement was largely an accounting falsehood, a chunk
of bogus "consumer relief" added to make the payoff look bigger. What
the public never grasped about these consumer--relief deals is that
the "relief" is often not paid by the bank, which mostly just services
the loans, but by the bank's other victims, i.e., the investors in their
bad mortgage securities.
Moreover, in this case, a fine-print addendum indicated that this
consumer relief would be allowed only if said investors agreed to it –
or if it would have been granted anyway under existing arrangements.
This often comes down to either forgiving a small portion of a loan or
giving homeowners a little extra time to pay up in full. "It's not
real," says Fleischmann. "They structured it so that the homeowners only
get relief if they would have gotten it anyway." She pauses. "If a loan
shark gives you a few extra weeks to pay up, is that 'consumer
relief'?"
The average person had no way of knowing what a terrible deal the
Chase settlement was for the country. The terms were even lighter than
the slap-on-the-wrist formula that allowed Wall Street banks to "neither
admit nor deny" wrongdoing – the deals that had helped spark the Occupy
protests. Yet those notorious deals were like the Nuremberg hangings
compared to the regulatory innovation that Holder's Justice Department
cooked up for Dimon and Co.
Instead of a detailed complaint naming names, Chase was allowed to
sign a flimsy, 10-and-a-half-page "statement of facts" that was: (a) so
short, a first-year law student could read it in the time it takes to
eat a tuna sandwich, and (b) so vague, a halfway intelligent person
could read it and not know anyone had done anything wrong.
Related
The ink was barely dry on the deal before Chase would have the balls
to insinuate its innocence. "The firm has not admitted to violations of
the law," said CFO Marianne Lake. But the deal's most brazen innovation
was the way it bypassed the judicial branch. Previously, federal
regulators had had bad luck with judges when trying to dole out
slap-on-the-wrist settlements to banks. In a pair of celebrated cases,
an unpleasantly honest federal judge named Jed Rakoff had rejected
sweetheart deals worked out between banks and slavish regulators and had
commanded the state to go back to the drawing board and come up with
real punishments.
Seemingly not wanting to deal with even the possibility of such a
thing happening, Holder blew off the idea of showing the settlement to a
judge. The settlement, says Kelleher, "was unprecedented in many ways,
including being very carefully crafted to bypass the court
system. . . . There can be little doubt that the DOJ and JP-Morgan were
trying to avoid disclosure of their dirty deeds and prevent public
scrutiny of their sweetheart deal." Kelleher asks a rhetorical
question: "Can you imagine the outcry if [Bush-era Attorney General]
Alberto Gonzales had gone into the backroom and given Halliburton
immunity in exchange for a billion dollars?"
The deal was widely considered a good one for both sides, but Chase
emerged with barely a scratch. First, the ludicrously nonspecific
language surrounding the settlement put you, me and every other American
taxpayer on the hook for roughly a quarter of Chase's check. Because
most of the settlement monies were specifically not called fines or
penalties, Chase was allowed to treat some $7 billion of the settlement
as a tax write-off.
Couple this with the fact that the bank's share price soared six
percent on news of the settlement, adding more than $12 billion in value
to shareholders, and one could argue Chase actually made money from the
deal. What's more, to defray the cost of this and other fines, Chase
last year laid off 7,500 lower-level employees. Meanwhile, per-employee
compensation for everyone else rose four percent, to $122,653. But no
one made out better than Dimon. The board awarded a 74 percent raise to
the man who oversaw the biggest regulatory penalty ever, upping his
compensation package to about $20 million.
"The assumption they make is that I won't blow up my life to do it. But they're wrong about that."
While Holder was being lavishly praised for releasing Chase only from
civil liability, Fleischmann knew something the rest of the world did
not: The criminal investigation was going nowhere.
In the days leading up to Holder's November 19th announcement of the
settlement, the Justice Department had asked Fleischmann to meet with
criminal investigators. They would interview her very soon, they said,
between December 15th and Christmas.
But December came and went with no follow-up from the DOJ. She began
to wonder: If she was the government's key witness, how was it possible
that they were still pursuing a criminal case without talking to
her? "My concern," she says, "was that they were not investigating."
The government's failure to speak to Fleischmann lends credence to a
theory about the Holder-Dimon settlement: It included a tacit agreement
from the DOJ not to pursue criminal charges in earnest. It sounds
outrageous, but it wouldn't be the first time that the government used a
wink and a nod to dispose a bank of major liability without saying so
publicly. Back in 2010,
American Lawyer revealed Goldman Sachs
wanted a full release from liability in a dozen crooked mortgage deals,
while the SEC didn't want to give the bank such a big public victory. So
the two sides quietly agreed to a grimy compromise: Goldman agreed to
pay $550 million to settle a single case, and the SEC privately assured
the bank that it wouldn't recommend charges in any of the other deals.
As Fleischmann was waiting for the Justice Department to call, Chase
and its lawyers had been going to tremendous lengths to keep her
muzzled. A number of major institutional investors had sued the bank in
an effort to recover money lost in investing in Chase's fraud-ridden
home loans. In October 2013, one of those investors – the Fort Worth
Employees' Retirement Fund – asked a federal judge to force Chase to
grant access to a series of current and former employees, including
Fleischmann, whose status as a key cooperator in the federal
investigation had made headlines in
The Wall Street Journal and other major media outlets.
Photo: Spencer Platt/Getty
In response, Dorothy Spenner, an attorney representing Chase, told
the court that Fleischmann was not a "relevant custodian." In other
words, she couldn't testify to anything of importance. Federal
Magistrate Judge James C. Francis IV took Chase's lawyers at their word
and rejected the Fort Worth retirees' request for access to Fleischmann
and her evidence.
Other investors bilked by Chase also tried to speak to Fleischmann.
The Federal Home Loan Bank of Pittsburgh, which had sued Chase, asked
the court to force Chase to turn over a copy of the draft civil
complaint that was withheld after Holder's scuttled press conference.
The Pittsburgh litigants also specified that they wanted access to the
name of the state's cooperating witness: namely, Fleischmann.
In that case, the judge actually ordered Chase to turn over both the
complaint and Fleischmann's name. Chase stalled. Later in the fall, the
judge ordered the bank to produce the information again; it stalled some
more.
Then, in January 2014, Chase suddenly settled with the Pittsburgh
bank out of court for an undisclosed amount. Months after being ordered
to allow Fleischmann to talk, they once again paid a stiff price to keep
her testimony out of the public eye.
Chase's determination to hide its own dirt while forcing Fleischmann
to keep her secret was becoming more and more absurd. "It was a hard
time to look for work," she says. All that prospective employers knew
was that she had worked in a department that had just been dinged with
what was then the biggest regulatory fine in the history of capitalism.
According to the terms of her confidentiality agreement, she couldn't
even tell them that she'd tried to keep the bank from committing fraud.
Despite it all, Fleischmann still had faith that the Justice
Department or some other federal agency would make things right. "I
guess I was just a trusting person," she says. "I wasn't cynical. I kept
hoping."
One day last spring, Fleischmann
happened across a video of Holder giving a speech titled "No Company Is
Too Big to Jail." It was classic Holder: full of weird prevarication,
distracting eye twitches and other facial contortions. It began with the
bold rejection of the idea that overly large financial institutions
would receive preferential treatment from his Justice
Department.
Then, within a few sentences, he seemed to contradict himself,
arguing that one must apply a special sort of care when investigating
supersize banks, tweaking the rules so as not to upset the world
economy. "Federal prosecutors conducting these investigations," Holder
said, "must go the extra mile to coordinate closely with the regulators
who oversee these institutions' day-to-day operations." That is, he was
saying, regulators have to agree not to allow automatic penalties to
kick in, so that bad banks can stay in business.
Related
Fleischmann winced. Fully fluent in Holder's three-faced rhetoric
after years of waiting for him to act, she felt that he was patting
himself on the back for having helped companies survive crimes that
otherwise might have triggered crippling regulatory penalties. As she
watched in mounting outrage, Holder wrapped up his address with a
less-than-reassuring pronouncement: "I am resolved to seeing [the
investigations] through." Doing so, he added, would "reaffirm" his
principles.
Or, as Fleischmann translates it: "I will personally stay on to make
sure that no one can undo the cover-up that I've accomplished."
That's when she decided to break her silence. "I tried to go on with
the things I was doing, but I just stopped sleeping and couldn't
eat," she says. "It felt like I was trying to keep this secret and my
body was literally rejecting it."
Ironically, over the summer, the government contacted her again. A
new set of investigators interviewed her, appearing to have restarted
the criminal case. Fleischmann won't comment on that investigation.
Frustrated as she has been by the decisions of the higher-ups in
Holder's Justice Department, she doesn't want to do anything to get in
the way of investigators who might be working the case. But she
emphasizes she still has reason to be deeply worried that nothing will
be done. Even if the investigators build strong cases against executives
who oversaw Chase's fraud, Holder or whoever succeeds him can still
make the whole thing disappear by negotiating a soft landing for the
company. "That's the thing I'm worried about," she says. "That they make
the whole thing disappear. If they do that, the truth will never come
out."
In September, at a speech at NYU, Holder defended the lack of
prosecutions of top executives on the grounds that, in the corporate
context, sometimes bad things just happen without actual people being
responsible. "Responsibility remains so diffuse, and top executives so
insulated," Holder said, "that any misconduct could again be considered
more a symptom of the institution's culture than a result of the willful
actions of any single individual."
In other words, people don't commit crimes, corporate culture commits
crimes! It's probably fortunate that Holder is quitting before he has
time to apply the same logic to Mafia or terrorism cases.
Fleischmann, for her part, had begun to find the whole situation almost funny.
"I thought, 'I swear, Eric Holder is gas-lighting me,' " she says.
Ask her where the crime was, and Fleischmann will point out exactly
how her bosses at JPMorgan Chase committed criminal fraud: It's right
there in the documents; just hand her a highlighter and some Post-it
notes – "We lawyers love flags" – and you will not find a more
enthusiastic tour guide through a gazillion-page prospectus than Alayne
Fleischmann.
She believes the proof is easily there for all the elements of the
crime as defined by federal law – the bank made material
misrepresentations, it made material omissions, and it did so willfully
and with specific intent, consciously ignoring warnings from inside the
firm and out.
She'd like to see something done about it, emphasizing that there
still is time. The statute of limitations for wire fraud, for instance,
has not run out, and she strongly believes there's a case there, against
the bank's executives. She has no financial interest in any of this, no
motive other than wanting the truth out. But more than anything, she
wants it to be over.
In today's America, someone like Fleischmann – an honest person
caught for a little while in the wrong place at the wrong time – has to
be willing to live through an epic ordeal just to get to the point of
being able to open her mouth and tell a truth or two. And when she
finally gets there, she still has to risk everything to take that last
step. "The assumption they make is that I won't blow up my life to do
it," Fleischmann says. "But they're wrong about that."
Good for her, and great for her that it's finally out. But the
big-picture ending still stings. She hopes otherwise, but the likely
final verdict is a Pyrrhic victory.
Because after all this activity, all these court actions, all these
penalties (both real and abortive), even after a fair amount of noise in
the press, the target companies remain more ascendant than ever. The
people who stole all those billions are still in place. And the bank is
more untouchable than ever – former Debevoise & Plimpton hotshots
Mary Jo White and Andrew Ceresny, who represented Chase for some of this
case, have since been named to the two top jobs at the SEC. As for the
bank itself, its stock price has gone up since the settlement and flirts
weekly with five-year highs. They may lose the odd battle, but the
markets clearly believe the banks won the war. Truth is one thing, and
if the right people fight hard enough, you might get to hear it from
time to time. But justice is different, and still far enough away.
From The Archives Issue 1222: November 20, 2014
