Rep. Barney Frank, a Massachusetts Democrat, defended JPMorgan on CNBC’s 'Closing Bell' Wednesday, calling the recent lawsuit brought against the bank for alleged fraud at Bear Stearns a dangerous precedent.
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By: Justin Menza News Writer
In early October, New York State Attorney General Eric Schneiderman brought a multi-billion lawsuit against JPMorgan, charging fraud in the sale of certain mortgage-backed securities by Bear Stearns, later acquired by JP Morgan under government pressure to help solve the financial crisis.
Frank was concerned that Schneiderman's action will make financial institutions reluctant to work with the federal government to work with financial institutions in future crises.
'I don’t want to set the precedent that when we go to someone in the future and say would you help us out, they say ‘no,’' said Frank, the ranking member on the House Financial Services Committee. 'It is fair to say that when you did this in response to pressure from the federal government, you’re not liable for the mistakes of the people that were there before'.
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He added, 'I worry about injuring our own capacity to do this in the future if it’s in the national economic interest'.
Earlier, JPMorgan CEO Jamie Dimon also characterized the suit as 'unfair' and said it has lost as much as $10bn from the purchase. He said it was a 'close call' as to whether they'd do something like that again.
Frank suggested that prosecutors should instead go after individuals at Bear Stearns or other financial institutions who may have broken the law.
'There’s been too little responsibility from individuals', Frank said. 'What they should be doing is looking for individuals at Bear Stearns that did things wrong and going after them, either civilly or criminally'. Going after JPMorgan shareholders, Frank said, doesn’t deter anyone.
Bank of America is also being sued for alleged fraud at Countrywide Financial, which Bank of America purchased during the financial crisis. But Frank holds that deal to a different standard, since 'that was an acquisition that (then Bank of America chief) Ken Lewis went for on his own'. (Read More: Federal Prosecutors Sue Bank of America Over Mortgage Program.)