Wall Street Watchdog Sues DOJ over $13B JPMorgan Pact

, The Litigation Daily

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Better Markets Inc., a nonprofit led by a former partner at Skadden, Arps, Slate, Meagher & Flom, filed an unusual lawsuit Monday challenging the legality of the U.S. Department of Justice's $13 billion mortgage settlement with J.P. Morgan Chase & Co.

"There was no judicial review or proceeding at all regarding this historic and unprecedented settlement," Better Markets CEO Dennis Kelleher wrote in a complaint filed on Monday in U.S. district court in Washington. "The $13 billion agreement is a mere contract whereby JP Morgan agreed to pay $13 billion in exchange for complete civil immunity from DOJ for years of pervasive, egregious, and knowing alleged fraud."

The DOJ announced the pact with JPMorgan in November. Of the $13 billion, $9 billion will resolve claims by federal and state agencies that the bank—as well as Bear Stearns & Co. and Washington Mutual Inc., which JPMorgan acquired in 2008—misled investors in mortgage-backed securities. Another $4 billion will fund programs to help homeowners. Sullivan & Cromwell represented JPMorgan.

Better Markets, a Wall Street watchdog that says it wants to help avert another financial crisis, clearly thinks that JPMorgan got off easy. But Tuesday's complaint focuses on U.S. Attorney General Eric Holder's decision to negotiate the deal in private, rather than bring suit. According to Better Markets, the DOJ overstepped its authority under the Administrative Procedure Act, becoming "investigator, judge, jury, sentencer and collector." Better Markets wants an injunction halting the deal until the facts underlying it—including the names of individual executives linked to wrongdoing—have been reviewed by a judge in open court.

The New York Times has called Better Markets "Occupy Wall Street's suit-wearing cousin." An Atlanta-based hedge fund manager is funding the nonprofit. CEO Kelleher was a securities litigator in Skadden's Boston office until 2004, when he became the legislative director for U.S. Senator Barbara Murkowski of Wisconsin.

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