A Republican member of the U.S. Securities and Exchange Commission blasted other government regulators on Monday for requiring JPMorgan Chase & Co to pay $13 billion to resolve allegations of mortgage misdeeds tied to the financial crisis.
"I think you would be hard-pressed to find any rational regulatory policy that would underlie a $13 billion penalty against shareholders," said SEC member Dan Gallagher, a Republican.
Last month JPMorgan agreed to pay $13 billion to resolve claims from the Justice Department, a federal housing regulator, and others, that the bank overstated the quality of mortgages it was selling to investors in the run-up to the financial crisis. The SEC was not a party to the settlement, which included $9 billion in cash and the rest as help to consumers.
The Justice Department rolled several separate investigations and lawsuits into one large settlement, and said such a deal was designed to hold wrongdoers accountable for misconduct that contributed to the crisis.
The cost of the settlement forced JPMorgan to record its first quarterly loss under CEO Jamie Dimon and was expected to cost JPMorgan $9 billion after tax, a little less than half the company's annual profit of $21 billion in 2012.
JPMorgan in a statement of facts acknowledged problems in its marketing of mortgage securities.
But the Justice Department did not release details of how it calculated the penalty, and did not release a complaint that laid out the entire scope of the misconduct government investigators had unearthed.
In an interview with Reuters last week, Attorney General Eric Holder defended the size of the fines. "What we have looked for in terms of the size of these things is really to do it in a way that's appropriate, that's proportionate," he said.
"There is a mathematical basis to the offers that we make," he said. "It's not something that we simply look at the size of the institution or their balance sheet," Holder added.
When announcing the deal, the Justice Department described it as the "largest settlement with a single entity in American history."
Holder also said in the interview that the department planned to bring more mortgage fraud cases against other financial institutions early in 2014.
Soon after the settlement, JPMorgan's general counsel Stephen Cutler criticized the large penalty imposed and described it as contributing to something of an arms race in government fines.
Speaking before an audience in Frankfurt at an event organized by the American Chamber of Commerce in Germany, Gallagher blamed that escalation on government lawyers looking to build a reputation.
"One of the ... problems we have in the United States is that prosecutors like to make a name for themselves and they all try to distinguish themselves in one way or another," he said.
"One way to distinguish yourself is to get the highest penalty ever against a bank ... I don't think it bears much resemblance to anything else. It is not rational," he said.