The Wall Street Journal recently profiled Richard Elias in its front-page article “How a Memo Cost Big Banks $37 Billion.” The article describes the critical role Elias played in the Justice Department’s investigation of J.P. Morgan, as well as the impact it had on other investigations:
Assistant U.S. Attorney Richard Elias was leafing through a pile of J.P. Morgan Chase & Co. documents while tending to his newborn son in 2012 when he found something that came back to haunt the three largest U.S. banks.
In a memo, one J.P. Morgan employee warned her bosses they were putting bad loans into securities being created before the financial crisis hit.
Mr. Elias’s discovery has delivered a whopping payoff so far: $36.65 billion, representing the cost of the government’s three separate settlements with the banks since late 2013, including the $16.65 billion deal with Bank of America in August that is the largest ever between the U.S. and a single company.
The total is by far the biggest single chunk of an estimated $128 billion in crisis- and mortgage-related settlements, fines and other costs incurred by the six largest U.S. bank holding companies, according to SNL Financial. Ongoing investigations could push the tally higher.
“Given the magnitude of the conduct, I believe the settlement was fair and just,” says Mr. Elias, 39 years old, who got the Justice Department’s second-highest employee-performance award for his work on the J.P. Morgan case.
Things weren’t going well for the Justice Department before Mr. Elias found the J.P. Morgan memo. In January 2012, President Barack Obama announced in his State of the Union address that a new group of federal lawyers and state attorneys general would expand government probes of “abusive lending and packaging of risky mortgages that led to the housing crisis.”
The group got off to a slow start. Investigations were distributed to U.S. attorney’s offices across the country, but federal officials could find little evidence needed to win a big civil or criminal case alleging fraud.
Near the end of conference calls, Mr. Elias, who became a federal prosecutor in 2011 and worked in a satellite office in Fresno, Calif., said the U.S. attorney in Sacramento didn’t have a case but wanted one. In October 2012, Justice Department officials in Washington asked his boss, Benjamin Wagner, to start digging into J.P. Morgan.
As soon as he saw the memo, Mr. Elias believed the government had a case against the bank. Summoned to Justice Department headquarters in January 2013 for a meeting scheduled to last 45 minutes, Mr. Elias and two colleagues were peppered with questions for twice as long.
The agency’s No. 3 official, Tony West, turned to a deputy and said: “This case has to be our model. We need to be doing this with the other districts.”
By mid-2013, Mr. Elias and other lawyers were nearly done drafting a lawsuit alleging that J.P. Morgan misled investors about the quality of mortgages packaged into bonds. Other U.S. attorneys’ offices were deploying more employees to sort through bank data.
J.P. Morgan executives were eager to settle. Bank lawyers hired mock juries to gauge how their side of the case might play out in a courtroom. The results were disheartening, especially when the “jurors” saw internal emails. J.P. Morgan offered $1 billion to settle some allegations.
About eight weeks later, the government announced a $13 billion settlement with J.P. Morgan. The bank neither admitted nor denied wrongdoing, but it agreed to a “statement of facts” that included damning details.