The largest bank in the United States, JPMorgan Chase, is already a 3-time felon. It received two felony counts in 2014 for its role in the Bernie Madoff Ponzi scheme and pleaded guilty to an additional felony count in 2015 for its role in a bank cartel that was rigging foreign currency trading. One more felony count and its Chairman and CEO, Jamie Dimon, might have finally been sacked by the bank’s timid Board for placing the bank’s global reputation under yet another scandal.
So, it appears this morning, based on an avalanche of reporting from Australia, that JPMorgan Chase has ratted out U.S. behemoth, Citigroup; the troubled German bank, Deutsche Bank; and Australian bank ANZ, in order to save its own skin. The Australian Financial Review politely writes that “JPMorgan blew the whistle” on the other banks over a $1.9 billion share sale of ANZ in 2015 and “is believed to have been granted immunity from alleged criminal cartel conduct.”
Notably, Citigroup was one of the banks handed a felony count along with JPMorgan Chase in 2015 for engaging in the foreign currency cartel. Citigroup released a statement this morning indicating that it “steadfastly denies the allegations made against it, and certain employees.” Under Australian cartel laws, employees can face up to 10 years in prison while the company can be fined three times the profits achieved in the illegal conduct.
The criminal charges will focus on an 80.8 million share sale by ANZ in 2015 to comply with new regulatory capital requirements. Citigroup, Deutsche Bank and JPMorgan were the lead underwriters in the share sale. According to a statement from ANZ, prosecutors are alleging that it and its three underwriters reached a secret understanding of how $800 million of ANZ shares that they were unable to sell to outside investors during the offering would be eventually disposed of.
According to a statement from the Australian Competition and Consumer Commission this morning, both the bank and employees of Citigroup are expected to be charged. The statement read:
“Further to its earlier statements regarding criminal cartel charges expected to be laid by the Commonwealth Director of Public Prosecutions (CDPP) against ANZ, its Group Treasurer Rick Moscati, and Deutsche Bank, the ACCC can confirm that Citigroup Global Markets Australia Pty Limited is the other company against which charges are expected to be laid, along with a number of individuals. The expected charges follow an extensive ACCC criminal cartel investigation. The ACCC will not make any further comment until charges are laid.”
The Commonwealth Director of Public Prosecutions (CDPP) said this morning that the first public hearing in the matter will be held in Sydney on July 3.
The criminal charges come against the backdrop of headlines in Australia arising out of hearings being held by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The headlines have painted the portrait of a financial sector rife with fraud and abuse of investors. What has effectively happened is that the Wall Street model of fraud, which has yet to be brought to heel in the United States, has transplanted itself into Australian finance, much the way an invasive species of fungus attaches to a boat bottom and infects clean waterways as the boat travels from region to region.
The conduct that Australia has correctly chosen to prosecute criminally will hopefully send a strong message to the cabal of global bank lawyers who hold those secret meetings at tony resorts annually. Tragically, the criminal conduct alleged in Australia seems almost quaint compared to what these banks are allowed to get away with in the United States.
As we previously reported, this is how the global banks conducted their business in the leadup to the dot.com crash in 2001:
“First, Wall Street firms issued knowingly false research reports to trumpet the growth prospects for the company and stock price; second, they lined up big institutional clients who were instructed how and when to buy at escalating prices to make the stock price skyrocket (laddering); third, the firms instructed the hundreds of thousands of stockbrokers serving the mom-and-pop market to advise their clients to sit still as the stock price flew to the moon or else the broker would have his commissions taken away (penalty bid). While the little folks’ money served as a prop under prices, the wealthy elite on Wall Street and corporate insiders were allowed to sell at the top of the market (pump-and-dump wealth transfer).”
And this, as we reported in 2008, is how Wall Street engineered the largest housing crash since the Great Depression in 2007-2009:
“The current housing bubble bust is just a freshly minted version of Wall Street’s real estate limited partnership frauds of the ‘80s, but on a grander scale. In the 1980s version, the firms packaged real estate into limited partnerships and peddled it as secure investments to moms and pops. The major underpinning of this wealth transfer mechanism was that regulators turned a blind eye to the fact that the investments were listed at the original face amount on the clients’ brokerage statements long after they had lost most of their value.
“Today’s real estate related securities (CDOs and SIVs) that are blowing up around the globe are simply the above scheme with more billable hours for corporate law firms.
“Wall Street created an artificial demand for housing (a bubble) by soliciting high interest rate mortgages (subprime) because they could be bundled and quickly resold for big fees to yield-hungry hedge funds and institutions. A major underpinning of this scheme was that Wall Street secured an artificial rating of AAA from rating agencies that were paid by Wall Street to provide the rating. When demand from institutions was saturated, Wall Street kept the scheme going by hiding the debt off its balance sheets and stuffed this long-term product into mom-and-pop money markets, notwithstanding that money markets are required by law to hold only short-term investments. To further perpetuate the bubble as long as possible, Wall Street prevented pricing transparency by keeping the trading off regulated exchanges and used unregulated over-the-counter contracts instead…”
Wall Street has a powerful incentive to want to beat these criminal charges in Australia. If the charges stick, it could bring unwanted attention to an unsavory U.S. Supreme Court decision that was handed down in 2007. In Credit Suisse v Billings, the Court effectively ruled that Wall Street is untouchable by the U.S. Justice Department for any illegal acts in the issuance of Initial Public Offerings (IPOs).
In the Credit Suisse case, investors alleged that the IPO underwriters had violated antitrust laws by forming syndicates for hundreds of technology-related companies. The lawsuit claimed that the underwriters unlawfully agreed that they would not sell newly issued securities to a buyer unless the buyer committed to buy additional shares of that security later at escalating prices; agreed to pay unusually high commissions on subsequent security purchases from the underwriters; or agreed to purchase less desirable stocks. The Wall Street underwriters asked the court to dismiss the complaint, claiming that federal securities law preclude application of antitrust laws to the conduct in question. The District Court sided with the big banks and dismissed the complaint, but the Second Circuit Court of Appeals reversed the decision. It was then accepted to be heard by the U.S. Supreme Court.
The Supreme Court ruled as follows, effectively drawing a no-law zone around Wall Street syndicate conduct:
“We believe it fair to conclude that, where conduct at the core of the marketing of new securities is at issue; where securities regulators proceed with great care to distinguish the encouraged and permissible from the forbidden; where the threat of antitrust lawsuits, through error and disincentive, could seriously alter underwriter conduct in undesirable ways, to allow an antitrust lawsuit would threaten serious harm to the efficient functioning of the securities markets…We therefore conclude that the securities laws are ‘clearly incompatible’ with the application of the antitrust laws in this context.”
Watching the criminal charges in Australia is a gut-wrenching reminder of just how far Americans have allowed Wall Street to corrupt our regulatory, legislative and judicial thinking and processes.