Is JPMorgan’s $9 Billion Witness Letter Under Seal in the Dracula Fraud Case?

It’s called the Dracula fraud case against JPMorgan because no matter how many times JPMorgan’s lawyers try to kill it, the case rises up from the dead to find new life. Now, with former JPMorgan insider Alayne Fleischmannrevealed by Matt Taibbi in Rolling Stone as someone who has critical firsthand evidence that a jury needs to hear in this case, a potential $1.6 billion jury award against JPMorgan is looking winnable – if the case can ever get in front of a jury.
The lawsuit was filed by affiliates of the Belgian-French bank Dexia, which received multiple bailouts by the two governments during the financial crisis. Dexia’s original complaint that was filed on January 19, 2012 in New York State Supreme Court, alleged widespread fraud in the sale of Residential Mortgage Backed Securities (RMBS) by JPMorgan, its direct affiliates and two firms it purchased during the financial crisis in 2008 – Bear Stearns and Washington Mutual.
Dexia had purchased $1.6 billion of the securities, which were assigned AAA ratings by Moody’s and Standard and Poor’s. Almost all of the securities, according to the lawsuit, are now rated junk and have suffered significant losses. Notably, 13 of the RMBS alleged to be fraudulently sold to Dexia affiliates were sponsored by JPMorgan, not Bear Stearns or Washington Mutual. JPMorgan has launched a major public relations offensive to try to shift the blame to the firms it acquired while portraying itself as the conservative mortgage underwriter.
After extensive discovery and depositions, two sealed documents have been filed in the case along with 242 exhibits from plaintiffs that are not under seal. That raises the question as to whether one of the sealed documents is Alayne Fleischmann’s potentially jury-shocking internal letter that was revealed in Taibbi’s article. Fleischmann, an attorney who worked as a Transaction Manager at JPMorgan, has alleged ‘massive criminal securities fraud’ in her department at JPMorgan, which was assigned with assuring that only good mortgage loans were securitized but, instead, under pressure from bosses, waived in the drek that was likely to default during the same time period that the Dexia plaintiffs’ lawsuit covers. After failing to stop the fraudulent process with verbal warnings, Fleishmann memorialized the details in a long letter to a superior.
The U. S. financial system, the economy, and the nation’s housing market suffered the greatest collapse since the Great Depression in 2008 to 2010 – in no small part because of ‘massive criminal securities fraud’ in the underwriting of toxic mortgage pools sold off as AAA-rated credits. Millions of Americans are still underwater on their mortgages because of fraudulent appraisals that were part of that securitization machinery. Economic growth and job creation are still subpar and the nation’s debt has mushroomed as a result of fiscal stimulus attempts to resuscitate the economy. Given that backdrop, one has to ask why Americans should tolerate any documents being filed under seal in lawsuits that go to the heart of this matter.
Also at stake is the reputation of the United States as a credible financial center supported by a credible justice system to right wrongs.

This post was published at Wall Street On Parade By Pam Marte.