Alayne Fleischmann was the unlikely law graduate to end up working on Wall Street. When she graduated, those who knew her best, expected a career pursued in human rights rather than the finance sector as a securities lawyer. “My whole life prior to moving into securities law was human rights work,” she says. But Wall Street knocked on her proverbial door, and with student loans to worry about, the heart of the finance sector was appealing.
Finding her passion in securities law, Fleischmann believed that she was able to make a difference from this new direction. Her talent and passion saw a career jump that landed her at one of the largest bank corporations, JPMorgan Chase, in 2006. The world held promise. But Fleischmann soon discovered that the industry was flawed; her outstanding skills, coupled with her desire to question human rights, inevitably led her to the title “whistleblower.” [1]
“It was like watching an old lady get mugged on the street,” she says, describing the actions she witnessed in her time with JPMorgan Chase as a deal manager of the bank. It was “massive criminal securities fraud” in the mortgage operations. A grand scale of fraud which saw Fleischmann blocked on every turn when trying to report it. Eventually the bank paid large fines, but without trials, judges or court system. Negotiations were settled under the table quietly and secretly; going to great lengths to conceal the goings-on from the general public.
What it came down to is Fleishmann coming across more and more loans that were approved on overstated incomes. Over 40 percent of them were based on impossible amounts. These toxic loans, bought by Chase were already several months old and defaulted on previously. They were the “bottom of the barrel” loans, where the industry resold them to investors, falsely marketing them as above subprime.
Fleischmann reported them to the diligence manager. What she saw were loans suddenly clearing, number-crunchers working back late and reports changing. Loans that would inevitably see high numbers of defaults, were cleared. The 40 percent dropped to 10 percent, a threshold that was originally 5 percent until they needed these loans to move.
Fleischmann testified in a Department of Justice deposition about the hiring of a new bank manager who oversaw the “diligence” of reviewing and clearance of loans, who instated a ‘no email policy’ in the department. There was to be no paper trail of the complaints and serious problems that Fleischmann and her colleagues highlighted, regarding packet home loans worth a collective $900 million.
In 2007, Fleischmann addressed the issue in a letter to managing director, William Buell. She also approached Greg Boster, another director, telling him that selling high-risk loans as low risk securities was fraud. By early 2008, Fleishmann was dismissed from her position in a round of layoffs and months later in September, the market began to crash. The subprime market, underwriting standards, and the dumping of these loans saw the everyday Joe become a victim of this fraudulent act.
The Saga Continues: Chase’s under the table deals.
In 2010, the Financial Crisis Inquiry Commission heard that JPMorgan Chase had been “duped…somehow we just missed, you know, that home prices don’t go up forever.” But Fleischmann, still bound by confidentiality agreements with Chase, knew that the bank had full knowledge of the bad loans being sold. So bad, that one litigant involving a credit union sued Chase for $51 million in losses.
By 2012, Fleischmann returned to Canada to find work. It had been years of trying to give evidence and repeatedly being shut down or ignored. But it 2013, she received a call to raise her hopes when civil litigators from the U.S attorney’s office, contacted her. She provided in detail all the information she had: the edict on the no email policy, the “diligence” process, the warnings she had provided regarding the risk of fraud. She expected the bank to finally have its day in court.
But rather than a day in court and Fleischmann expecting to testify, a $9 billion deal was done under the table to settle the matter, where Fleischmann was used by the Justice Department as a bargaining chip to extract hush money. Agreements were reached, including the fraud that Fleischmann had covered. JPMorgan Chase was released from civil liability, emerging with barely a scratch.
Fleischmann felt lost, but not dissuaded. The lengths that Chase had gone to keep her testimony from any hearing was tremendous. On several occasions, investigators representing different cases would ask for her testimony only to receive a reply that she wasn’t a credible witness; the Fort Worth Employee’s Retirement Fund reps, are one such group, as well as The Federal Home Loan Bank in Pittsburgh.
In the case of Pittsburgh, Chase stalled a court’s order twice on handing over Fleischmann’s name and details. By January 2014, Fleischmann discovered that Chase had settled with the Pittsburgh Bank out of court. But this isn’t her main concern. Time is running out to prosecute JPMorgan Chase. The statute of limitations time frame is running on a short fuse, and once out, Chase walks free.
“The assumption they make is that I won’t blow up my life to do it,” Fleischmann states, referencing her hope to get the truth out there and everything she risks to do it. “But they’re wrong about that.” [2]
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Sources:
[1] Zaid Jilani (7 November 2014) “JPMorgan Chase Paid $9 Billion Fine to Keep This Woman Silent About Its Crimes.” http://www.alternet.org/corporate-accountability-and-workplace/jp-morgan-chase-paid-9-billion-keep-woman-silent-about-its
[2] Matt Taibbi (6 November 2014) “The $9 Billion Witness: Meet JPMorgan Chase’s Worst Nightmare” http://www.rollingstone.com/politics/news/the-9-billion-witness-20141106?page=6 The Rolling Stone. (Retrieved 21 November 2014)
