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JPMorgan, RBS Executives Face DOJ Probe for 2008 Crisis

In what could be the first for federal prosecutors, the U.S. Department of Justice ("DOJ") is preparing criminal charges against executives at JPMorgan Chase & Co. JPM and The Royal Bank of Scotland Group plc RBS . This was first reported by Wall Street Journal, citing persons familiar with the ongoing investigation.

The probe against executives pertains to alleged sale of faulty mortgage securities prior to the 2008 financial crisis. The selling of such mortgage securities was deemed as one of the primary triggers of the crisis.

In Sep 2015, Deputy Attorney General Sally Quillian Yates, through a memo addressed to all other assistant attorney generals as well as all the U.S. attorneys, stated that the DOJ is undertaking "six specific steps to hold individual corporate wrongdoers accountable."

The DOJ officials are examining whether executives had ignored warnings from compliance and diligence departments regarding the fact that low-quality mortgages were bundled into investment securities and sold to investors as high quality securities. Further, the regulators are trying to determine whether such practices "constituted fraud".

For these, the prosecutors are inspecting a $2.2-billion deal that bundled residential mortgages into bonds in 2007 at RBS as well as two bankers who worked on a different residential-mortgage deal at JPMorgan. Notably, both companies had previously acknowledged existence of criminal investigation.

Moreover, since the financial crisis, JPMorgan and RBS, along with other major Wall Street biggies including Bank of America Corporation BAC , Citigroup Inc. C and Morgan Stanley, have paid billions of dollars to the U.S. financial regulators as fines over settlements related to business malpractices in the pre-crisis era.

Therefore, the cases, if filed, will represent the first high profile criminal prosecution of Wall Street bankers since the 2008 financial crisis. Additionally, non-existence of such cases has enraged all Senators across the party lines. Notably, Democratic Party presidential hopeful and frontrunner Hillary Clinton, while unveiling her proposals for financial firms, stated accountability on Wall Street should increase by making individuals responsible for "egregious misconduct."

Nonetheless, the prosecutors face two deadlines, namely, the expiration of the 10-year statute of limitations in 2017 and the end of President Barack Obama's term in Jan 2017.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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