subprime

Bankers tied to JPMorgan's $13 billion settlement doing just fine

November 27, 2013: 5:00 AM ET

Where are the bankers involved with JPMorgan's dubious mortgage deals? At JPMorgan, Goldman Sachs, and other Wall Street firms.

131122133055-jp-morgan-chase-620xa

FORTUNE -- News that JPMorgan Chase would pay a $13 billion fine, the largest government penalty levied on a single company, initially led to calls that CEO Jamie Dimon should step down.

That's not going to happen. Board members have rallied around Dimon. What's more, it's unlikely that Dimon had any direct involvement in the troubled mortgage deals. In fact, he warned his executives about the dangers of subprime loans.

But what about the investment bankers who were involved in underwriting and selling the dubious mortgage deals that led to the massive penalty? They appear to be doing just fine as well. Indeed, until last month, three of the top bankers responsible for the deals still worked at JPMorgan (JPM). One appears to have received a promotion.

MORE: JPMorgan's top lawyer fires back at regulators

David Duzyk, who was in charge of the division that put together the questionable mortgage deals, still oversees that area of the bank. And not just mortgages. Duzyk is responsible for the bankers who package all types of consumer lending products -- including credit cards and auto loans -- into bonds and sell those bonds to investors. In May, trade publication Asset-Backed Alert named Duzyk one of the world's top professionals in the area. Last week, in announcing the settlement with JPMorgan, Attorney General Eric Holder seemed to have a different view. "Without a doubt," Holder said in a statement, "the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown."

According to the government, JPMorgan bankers regularly included loans in deals that did not meet the bank's underwriting guidelines and were "not otherwise appropriate for securitization." Louis Schioppo appears to have held the watchdog role of risk manager for JPMorgan's "securitization group," which underwrote mortgage and other consumer loan deals. His official title was CFO of the group.

But the fact that so many inappropriate loans ended up in deals he was supposed to police doesn't appear to have sullied Schioppo's record. Schioppo's duties were expanded to all of investment banking in 2010, according to his public LinkedIn page. Last year, Schioppo was named CFO of the division that monitors risk for the entire bank. Another JPMorgan banker named in the suit, Brian Bernard, also survived the bad deals. He left the bank just last month.

Duzyk, Schioppo, and Bernard could not be reached for comment.

The Justice Department's settlement with JPMorgan does not name any individuals. But an earlier suit, which is part of the settlement deal, filed by the Federal Housing Financial Agency on behalf of Fannie Mae and Freddie Mac (which lost money on the mortgage deals) does include individuals who worked and signed off on the deals. Both Duzyk and Schioppo, along with others, were named in the FHFA suit.

MORE: In defense of JPMorgan and Twitter on taxes

On a conference call with investors last week, Marianne Lake, JPMorgan's CFO, said that while the government's investigation of individuals continues, she doesn't believe the firm engaged in any criminal conduct. According to a JPMorgan spokesperson, "None of the individuals in the FHFA document were alleged to have knowingly engaged in wrongful conduct or fraud. In fact, there was no conduct alleged at all other than signing the registration statement."

JPMorgan has said that 80% of the misconduct covered by the settlement occurred at Bear Stearns and Washington Mutual, both of which JPMorgan acquired in 2008. Dealmakers at those two banks appear to have landed on their feet as well.

Jeffrey Verschleiser, who helped manage Bear Stearns's mortgage division and was also named in the FHFA suit, is now a partner at Goldman Sachs (GS) and the global head of the bank's mortgage trading division. Jeffrey Mayer, who was also named in the FHFA suit and was the co-head of Bear's bond business, is now the head of Deutsche Bank's (DB) U.S. corporate banking and securities operation. Michael Nierenberg, who co-ran mortgage trading at Bear with Verschleiser and is named in the FHFA suit, until recently was the head of mortgage products at Bank of America (BAC). Earlier this month, Nierenberg landed a job with giant hedge fund Fortress.

Verschleiser and Mayer could not be reached for comment. In asking about the suit, Nierenberg said he was named along with "about 100 other bankers, right?" He declined to comment further.

Most of the Washington Mutual bankers who worked on mortgage deals included in the government settlement appear to have left banking. Craig Davis, who was the president of WaMu's home loan division and is named in the suit, is a board member at Ellie Mae, a company that provides software to the mortgage industry. Last year, he was paid $124,640 for that role. Davis could not be reached for comment.

Two other JPMorgan bankers who were named in the suit have left the firm. William King was Duzyk's boss and, according to a 2008 Fortune article, got a call from Dimon while on vacation in Rwanda in late 2006 warning him to watch out for subprime. He is now the chief investment officer of mortgage finance firm Carrington Holding. King could not be reached for comment.

MORE: Bond king Bill Gross faces dismal 2013

Christine Cole, Duzyk's other boss, left JPMorgan shortly after the financial crisis to be the head of strategy for the Academy for Urban School Leadership in Chicago. A spokeswoman for the non-profit said Cole had recently retired. After being contacted by Fortune, the non-profit removed Cole from a list of leaders on its website.

The FHFA suit says nothing about the exact role Duzyk or any of the others had in the dubious deals. A source at JPMorgan says Duzyk wasn't directly involved in the deals but was responsible for them. According to the statement of facts in the Justice Department's settlement, there does appear to be some JPMorgan employees who raised concerns about the loans in the deals. The biggest complaint appears to have come from an unnamed female employee. But after a review, according to the settlement, top JPMorgan bankers in "due diligence, trading, and sales" all signed off on the deals.

Many bankers did deals in the run-up to the financial crisis that included ill-advised loans that resulted in losses. Still, few besides Duzyk are in the same jobs that they held before the financial crisis.

What's clear is that, over the years, Duzyk has made a lot of money for JPMorgan. The bank was a laggard when Duzyk was hired by JPMorgan in 2005 to take over its mortgage and consumer lending investment banking division. JPMorgan now regularly tops Wall Street rankings in that area.

A check of Duzyk's records on the Financial Industry Regulation Authority's website doesn't show that he is the subject of any government investigations. He is listed as a defendant in two pending civil suits related to past mortgage deals.

"There has to be accountability for both the banks and the individuals who were putting together these deals," says Dennis Kelleher, who runs Better Markets, which has argued for increased regulations of banks and Wall Street. Kelleher has criticized the JPMorgan settlement for, among other things, providing relatively few details about the behavior for which JPMorgan is paying the massive fine. "Without full disclosure of the crimes or individual accountability, settlements like these continue to reward and incentivize illegal conduct."

  • Bank loans drop, even as profits jump

    It was another good quarter for banks, but they're not quite fixed.

    FORTUNE -- The credit crunch may be over, but we are crawling our way out.

    After rising for all of last year, bank lending dropped in the first three months of the year, according to FDIC data compiled by bank research firm Bankregdata.com. The drop comes as low interest rates are squeezing how much money banks can make from their MORE

    - May 8, 2013 7:00 AM ET
  • Student loans: Welcome to subprime university

    Unlike the U.S. mortgage market, an imploding student loan market will have few immediate consequences, and that could be its biggest risk.

    By Lauren Silva Laughlin

    FORTUNE -- Make no mistake: the student loan market is a disaster. The Wall Street Journal recently reported that a third of borrowers in the $900 billion market are subprime, and about a third of those subprime borrowers aren't paying bills on time. Lending standards MORE

    Feb 14, 2013 1:05 PM ET
  • DC's new motto: Why buy when you can rent?

    Selling the massive glut of homes the U.S. government now owns hasn't exactly worked out. Now Washington is exploring the idea of renting them.

    FORTUNE -- Owning once trumped renting, but the collapse of the U.S. housing market changed all that. Newly strapped consumers took it upon themselves to redefine the American dream, making it socially acceptable to mail in a rent check instead of a mortgage payment. Now, it seems MORE

    - Aug 24, 2011 4:39 PM ET
  • SEC whacks Morgan Keegan manager

    Regulators have finally located a fraud for which they can hold an actual person accountable.

    The Securities and Exchange Commission agreed Wednesday to settle a bubble-era subprime fraud suit against broker Morgan Keegan. And in an unusual twist, it managed to wring a stiff settlement out of the guy who oversaw the alleged fund-overpricing scheme.

    Morgan Keegan will pay $200 million to settle charges it defrauded customers by selling mutual fund shares at MORE

    - Jun 22, 2011 1:07 PM ET
  • S&P's Bernanke moment?

    Don't look now, but the rating agency just issued a report with this headline:

    Municipal Risk For Rated U.S. Banks Appears To Be Contained

    You might have thought no one in the financial markets would ever use that word with a straight face after Fed chief Ben Bernanke's March 2007 testimony before Congress on the subprime crisis. As you may recall, he said [emphasis is mine]:

    Although the turmoil in the subprime mortgage market has MORE

    - Mar 31, 2011 2:29 PM ET
    Posted in: , , , ,
  • A fond farewell to a bigtime banking hero

    It's hard to believe, but there are bankers out there who give the business a good name. Arthur F.F. Snyder was one of them.

    Hating bankers is all the rage these days. Hey, what's not to hate when we hear bankers whine about being "demonized" while knocking down multimillion-dollar pay packages from banks that wouldn't exist if U.S. taxpayers hadn't rescued the world financial system? I was especially sensitive to the MORE

    - Feb 8, 2011 5:00 AM ET
  • How the roof fell in on Countrywide

    Editor's note: This week FORTUNE is publishing excerpts from its favorite business books of 2010. This excerpt from Bethany McLean and Joe Nocera's All the Devils are Here talks about how Countrywide's Angelo Mozilo was blind to the risky mortgages that would eventually wound his firm and contribute to the global financial crisis.

    CEO and co-founder Angelo Mozilo saw a subprime mortgage crisis coming -- for everyone except his own company.

    By MORE

    Dec 23, 2010 3:00 AM ET
  • Subprime shorter Greg Lippman takes the stage

    Greg Lippman, the former Deutsche Bank (DB) trader profiled by Michael Lewis in "The Big Short,"  participated this morning in the Bloomberg 2010 Hedge Fund conference, held at the Guggenheim Museum in New York City. And since Bloomberg TV was taping, it also doubled as Lippman's first-ever television interview.

    Kind of fascinating how mild-mannered he comes across, compared to the brash and unfiltered portrayal by Lewis.

    Lippman earlier this year left Deutsche to MORE

    - Dec 2, 2010 11:58 AM ET
  • Bank of America is still taking big risks

    Taking on too much risk got the banks in trouble. So why are Bank of America and GMAC taking on more by resuming foreclosures?

    Earlier this week, Bank of America (BAC) and Ally Financial's GMAC mortgage unit announced they would resume foreclosures in many states, even while government investigations into foreclosure procedures ramp up.

    Their timing was curious -- both banks went back in on the same day? But what's really remarkable MORE

    - Oct 20, 2010 1:28 PM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.