“We're Already Rolling Back the Reforms”


As an employee of JPMorgan Chase between 2006 and 2008, Alayne Fleischmann witnessed what she considered flagrant disregard for securities law and the deliberate deception of investors—part of a corporate culture that had led to one of the most damaging financial meltdowns in U.S. history.

Fleischmann, a native of Terrace, in the Canadian province of British Columbia, was subsequently interviewed by Department of Justice (DOJ) investigators, who used her information to pressure JPMorgan Chase into a $9 billion court settlement, which Attorney General Eric Holder and other officials later trumpeted to show that no company, no matter how big, was “above the law.”

But as far as Fleischmann was concerned, the DOJ had demonstrated exactly the opposite.

By failing to use the information provided by her to prosecute the bank for civil-fraud charges, the government had in effect given corporate wrongdoers a free pass, she said. In a remarkable personal decision, Fleischmann decided to go public with her concerns in a November 2014 interview with Rolling Stone.

The interview dropped like a bombshell, puncturing DOJ assertions that it was finally moving aggressively against corporate wrongdoing and high-level white-collar crime. In an interview with TCR's Deputy Managing Editor Graham Kates, Fleischmann discusses why she decided to go public, what it meant for her own personal career, and why she worries that the government's “cover up” of corporate malfeasance makes it likely that we'll see a repeat of similar scandals.

The Crime Report: You started as a whistleblower on JPMorgan, but through the story in Rolling Stone, you're also blowing the whistle on the failures of the DOJ investigation.

Alayne Fleischmann: That's exactly right — at first I was whistleblowing against JPMorgan. I'm thinking, 'OK, I've got the Securities and Exchange Commission (SEC) and the DOJ on my side.' And to a certain extent I did. The DOJ were the ones who really broke this whole thing open.

But after the settlements, when it looked like this criminal investigation wasn't going to go forward, I was also in the very awkward position of pointing out that the Department of Justice, at the highest level, is choosing not to go forward.

TCR: Many of our readers work at the DOJ, or are involved in criminal justice policy. Were they sending a message by selecting you as the 2014 Newsmaker?

AF: I think it shows that prosecutors and investigators are working really aggressively on cases, finding really good facts and then watching as the top level of the DOJ — which I always think of as the political level — settles for money without the facts coming out. When you think of how much work goes into these investigations, and then to have it not come out, it must be very frustrating to the people working these cases.

TCR: Congress recently rolled back parts of the Dodd-Frank financial reform law, which makes sure banks can't engage in risky derivative swaps. Do you see this as an invitation of sorts to go back to the kind of corporate climate that you saw at JPMorgan?

AF: Absolutely. It just goes to show how much power there is politically from these banks. Even after a massive financial crisis, we're already rolling back the very tiny regulatory reforms that were made, and we still haven't gone back to some of the pre-crisis regulation that worked for so long. Things like Glass-Steagall and other basic, common sense regulations.

To a certain extent, I actually consider some of the regulatory discussion moot, since we're not even enforcing the weak regulations that we have.

TCR: Are we at risk of having another crisis similar to the one caused by subprime mortgages?

AF: Absolutely, I think in a lot of ways we're in a worse situation than we were before. One thing I find funny is that this has been called the “subprime crisis.” In fact, a lot of the loans that had problems from these securities, where investors had massive problems, weren't even subprime. They were Alt-A, which actually grew out of prime. It's only recently they've been renamed subprime.

On top of that we still have the massive derivatives market, for which — as we talked about — they're already reducing regulations. And now banks are also getting much more involved in commodities.

And the banks now are even bigger than they were before. JPMorgan was “too big to fail” at 160,000 employees; now they're at 250,000 employees. It just seems like not only have things not gotten better, they've gotten a lot worse.

TCR: Among the troubling anecdotes you discuss in the Rolling Stone story is the “no-email” policy instituted by your then-boss. Has this cavalier corporate culture changed?

AF: No, and I almost think it's been reinforced. Because there hasn't been anything other than these fines. I think it gives the impression that no matter what they do, they're going to be insulated. Even when I was (at JPMorgan), I was watching these things and thinking, 'If they securitize these loans without proper disclosure, this is going to be a crime.'

On some level it was because they had this wall of lawyers they could stand behind; but it's not just the lawyers though, it's also the media. There has not been the sort of in-depth coverage that there should have been.

TCR: Have the media been properly skeptical of both the banks' stance on these issues, and of the DOJ's handling of this?

AF: It's actually gotten a lot more attention from smaller media outlets, ones like yours. In the mainstream media, there's been so much that has been ignored.

When the Statement of Facts came out for JPMorgan, I remember seeing a piece on Bloomberg where the guy argued, 'This doesn't mean there was fraud.' Well, when you look at the Statement, it should make a reporter want to dig in and investigate, right?

TCR: Speaking of Bloomberg, you and Matt Taibbi did an interview on that network in which it almost seemed like the anchors were trying to offer a rebuttal to the story, for the banks.

AF: Yeah, I got pushback at a couple of places where it was almost like you're anti-business if you point out these crimes. And I would say it's exactly the opposite. You can't have a functioning financial system if you can't rely on basic rules. If investors can't trust the people selling them investments, how can this thing function?

I think what happened with these large media outlets that cover business, was that there's so much connection between them and the banks they cover, that they kind of get caught in this bubble and didn't look at it from the outside perspective of the public, who end up picking up the check for this.

They don't think about that side of it; they just think whatever's best for the banks is best for everyone else.

TCR: This summer, an investigation by The Crime Report found that the Justice Department almost never prosecutes corporations for environmental crimes. What do you think drives a mindset that says, “Once a company reaches a certain size, you shouldn't bring it to court”?

AF: One scary thing — this is where it has to be dealt with on the regulatory side — is the simple fact that these companies are too big, and there really is a risk of people losing their jobs or having an impact on the economy. But the way the DOJ deals with that is to say, “We'll just hide the facts, so no one knows that this happened,” which obviously makes things worse.

What they need to do is go back to the things that have worked before, what we did after the Great Depression.

If something is too big to fail or too big to prosecute, then it's simply too big to exist.

TCR: What you've called a cover-up, the Justice Department calls a settlement.

AF: The JPMorgan settlement was really the first of its kind in that before, when you had these awful settlements where the company didn't have to admit wrongdoing, there was at least a complaint that got filed, or a whole bunch of information was made public.

The amazing thing about this settlement, and the reason I call it a cover-up, is (the DOJ) had very detailed, clear facts, about who did what and that they knew what they were doing. And frankly, in the case of JPMorgan, they knew it was a crime. Yet when they come out with the Statement of Fact, everything you'd need to point to it as evidence of fraud has been wiped away.

And also, normally private litigants would be able to use the information that the DOJ made public for their private litigation. But when the DOJ keeps all this under wraps, these litigants are stuck in limbo.

I've met with people who have cases that have been going on since 2009 and they're still in the discovery stage; they're still fighting to get documents from JPMorgan. Documents the DOJ had and decided not to make public.

TCR: You've been in touch with people that are pursuing litigation against JPMorgan?

AF: Lawyers for pension funds, community banks, those sorts of litigants — a couple of them I've met with under subpoena and they're OK with me publicly saying that we've met.

TCR: The Justice Department has continuously said in statements that it hasn't ruled out criminal charges against certain banks.

AF: That was the reason I came forward. They're saying there's a criminal investigation, but I'm the person at the center of the investigation. I was supposed to meet with these criminal investigators and that hasn't happened. You have to start asking whether there's a legitimate investigation.

TCR: What do you think of Loretta Lynch, the person nominated to take Attorney General Eric Holder's place?

AF: She was the lead on the HSBC case, where they were involved with money laundering to a very violent Mexican drug cartel. And again, despite the fact that there was evidence against individuals, they chose instead to go with a fine. One of these deferred prosecution agreements.

I actually think that's probably the worst case in the last few years. At the time she obviously wasn't in charge, and I don't know how much you can do when the people who are in charge have this policy of appeasement and fines.

So I hope when she is in charge there will be changes.

TCR: Has going public come at a risk to you?

AF: Certainly financially. You look at other whistleblowers and it certainly closes a lot of doors. There's a lot of risk when you're dealing with a large institution like JPMorgan. In terms of working as a corporate or securities lawyer, it's not an understatement to say that JPMorgan is in almost every major city in the world, so there's obviously an impact.

But for me, it was just that I didn't want to take part in this. I felt like if this does get swept away with some sort of deferred prosecution agreement or if the statute of limitations ran out, if I didn't do anything about it, I'd become a part of it.

That was the main thing. Whatever happens to me financially, I couldn't move forward feeling like I had been a part of this.

Also, I look at these private litigants — who are often tradespeople, county workers — and see how much money is at stake for them. They legitimately deserve to have all the facts about what happened.

When I weighed that against what can happen to me, it was so obvious that I needed to come forward.

Graham Kates is Deputy Managing Editor of The Crime Report. He welcomes comments from readers. He can be found on Twitter, @GrahamKates.

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