The federal government cajoled JP Morgan into acquiring Bear Stearns. Now they are punishing JP Morgan for crimes allegedly committed by Bear Stearns prior to the acquisition. Maurice Greenberg, chairman and CEO of C.V. Starr & Co, writes in The Wall Street Journal:
History seems to be repeating itself with the case of J.P. Morgan. The global bank is now under siege by federal and state regulators. The most ironic claim against J.P. Morgan is an allegation from current New York Attorney General Eric Schneiderman of mortgage fraud at Bear Stearns that allegedly took place prior to J.P. Morgan’s acquisition of that firm. J.P. Morgan acquired Bear Stearns at the urging of federal officials who feared that fallout from Bear’s collapse would damage the entire economy.
Like AIG, J.P. Morgan plays a central role in both the U.S. and world economies. There are no more than a handful of executives with the requisite experience, talent and intelligence to lead that bank. Its chief executive, James Dimon, is one of those rare individuals. By diverting his attention from his responsibilities, government officials are hurting shareholders, pension funds, countless employees, the City of New York, and the national and global economy—not to mention undermining confidence in our banking system.
Those regulators have pushed their dubious claims to the point of requiring the bank to pay over $11 billion in fines. I hope the board of directors at J.P. Morgan will have the wisdom and courage to support their CEO and not cave to demands from regulators that can only harm the company and its stakeholders. That would send a strong message to the nation’s business community and allow J.P. Morgan to continue to benefit from Mr. Dimon’s leadership.
Whatever you think about “banksters,” this appears to be a breach of natural justice.
That this should arise in the case of regulation is unsurprising. Most regulation is not about justice. Its legal framework is one of strict liability—simply committing the act proves the crime. This is distinct from the traditionally accepted view of justice wherein one must have a “guilty mind” (a mens rea) to commit a crime (actus reus)*. The intention of strict liability is simple: to create an atmosphere in which acts that legislators believe can be harmful but are not immoral are discouraged. Yet this has led to a phenomenon overcriminalization—where innocent acts are not just crimes but ones which carry severe penalties. I know of no better guide to the law in this area for the layman than that at lawcomic.net.
This problem is multiplied when one considers that regulators are given sweeping powers by the law. As Ammon Simon points out at National Review’s Bench Memos, the Consumer Financial Protection Act empowers the Consumer Financial Protection Bureau to “issue a CID [Criminal Investigation Demand] to ‘any person the bureau has reason to believe may have information relevant to a violation.'” These sweeping powers are exactly why CEI is challenging the Dodd-Frank act in court, as Mr. Simon describes.
To be sure, what JP Morgan is being investigated for include alleged crimes like fraud in which there may well have been a mens rea, but the investigation shares with regulatory crimes and the sweeping powers of regulators the whole sense of overweening injustice that help to undermine respect for the rule of law.