Why has it taken regulators years to bring an action against JPMorgan (JPM) and the other banks whose mortgage-backed securities machine blew a hole in our economy we're still trying to patch? Since the market collapsed in 2008, the regulators have failed to take action against the banks that churned out the securities that fueled the crisis.
Wall Street, as we have routinely noted, has continued to profit. Top executives continued to stuff their pockets with money despite Wall Street's abysmal failure. According to a report by Susanne Craig and Ben Protess in Wednesday's New York Times, the average pay package of an employee at a securities firm in New York State was $362,950, an increase of 17% over the last two years.
The fat cats, no doubt, will remain so. But the regulators appear to be finally stirring, and their inexplicable lack of action may finally be behind them.
United States prosecutors sued Wells Fargo on Tuesday, accusing it of lying about the quality of the mortgages it handled under a federal housing program. It was the latest in a series of lawsuits related to banks' lending practices during the housing boom.
The DOJ is seeking hundreds of millions of dollars in damages, according to the Times.
Preet S. Bharara, the United States attorney in Manhattan, whose office filed the lawsuit, said in a statement:
Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance.
And last week, New York Attorney General, Eric Schneiderman, in conjunction with a federal and state task force, fired the first shot against JPMorgan in connection with gross misconduct at Bear Stearns, which it acquired. Bear Stearns was one of the most notorious underwriters of worthless mortgage-backed securities, which were sold to investors such as pension funds, institutions and even individual investors.
Hopefully this is the beginning of a trend in which we will see more cases brought against other banks for their roles in creating the global financial crisis.
The regulators' secret weapon is New York's Martin Act, which was first used by Eliot Spitzer going after Wall Street for the fraudulent analyst reports which served largely to hype tech stocks, inflating a bubble whose bursting cost investors dearly in year 2000. The Martin Act, unlike any other securities law in the country, does not require the prosecutors to prove "intent" but simply that fraudulent conduct took place. This should be a slam-dunk case against many of the major banks who pumped out bogus mortgage-backed securities, reaped huge profits, and left investors holding the bag.
Investors are cheering for the prosecutors and hoping that finally someone is held accountable for the disaster that Wall Street wrought. While it may be too much to hope for, it is even possible that we may see some "perp walks" like in the Enron and WorldCom era?
One only hopes that Eliot Spitzer's secret weapon, The Martin Act, can be deployed successfully against Wall Street again.
Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions, including JPMorgan Chase & Co.
This article previously appeared on Forbes.com on 10/12/12