Reason To Be Pissed – A Summary of Claim – Overview BY IWB · OCTOBER 7, 2011
35. In and around 2004, JPMC’s then-Chief Operating Of?cer, James Dimon, resolved to improve JPMC’s lack of market presence on the West Coast and in the south. Dimon would, in 2005, take over JPMC as Chairman and Chief Executive Of?cer. JPMC’ sshareholders had been clamoring for Washington Mutual’s network of bank branch holdings on the West Coast and south, and its large deposit base. Dimon, in response, promised to acquire banks in “fast-growing markets such as Florida, New Jersey and California,” according to a March 28, 2005 Business Week article.
36. On July 29, 2004, at a company meeting with JPMC’s branch managers, Dimon declared “Retail is not only here to stay, but you are a tremendous asset” Dimon promised to push to expand the retail business. Later that month, Dimon told analysts on a conference call that JPMC would be in position to make a “major acquisition” by early 2006. Upon information and belief, the intended “major acquisition” referred to by Dimon was Washington Mutual.
37. In January of 2005, in order to place insiders in his targeted company, Dimon sent a number of senior and junior executives to Washington Mutual to begin “new chapters”in their lives. The most signi?cant transfer to Washington Mutual was Stephen J. Rotella, an I8-year veteran of JPMorgan Chase, who held the posts of chief executive of?cer for Chase Home Finance, executive vice president for JPMorgan Chase, and member of the JPMorgan Chase executive committee. At Washington Mutual, Rotella took the job of president and chief operating of?cer.
38. In addition to Rotella, at least four senior vice presidents and a chief ?nancialof?cer transferred from JPMC to Washington Mutual as plants in late 2004 and 2005. These included, Steve Fortunato, a 12 year veteran ofJPMC serving as Senior Vice President, Chase Home Finance, who was responsible at JPMC for, among other things, merger analysis, forecasting and mortgage servicing valuation; Tai Bindm, Chief Financial Of?cer and Executive Vice President for Chase Home Finance; John Berens, senior vice president of default services, managing over 2,000 JPMC employees; Youyi Chen, PhD, senior vice president responsible for managing the interest rate risks of JP Morgan Chase’s mortgage servicing rights (MSR) portfolio; and Bill Murray, a senior vice president, led the MSR valuation, pricing and reporting functions for JPMC’s Capital Markets group. Upon information and belief, Rotella and the other JPMC executives that transferred to Washington Mutual understood and agreed to help with Dimon’s long term plan and goal for JPMC to acquire Washington Mutual, and thereafter provided substantial assistance to that end.
39. JPMC’s and CEO Dimon’s strategy of gaining an insider position was a well-trodden approach for them. They used this approach in 2006 to gain con?dential information regarding a client’s natural gas derivatives trading positions, Amaranth. JPMC and Dimon used this con?dential information and misstatements about Amaranth’s solvency to prevent attempts to sell a block of its natural gas position to an outside party. JPMC inserted itself into the deal and reaped a pro?t of more than $725 million. As reported by an online news source on November 15, 2006 and later cited in Amaranth’s lawsuit against JPMC, a JPMC executive boasted of JPMC’s ability to leverage its inside information sources: “We are not exposed from a credit perspective, materially, which allows us to respond quickly to opportunities when they come up. Amaranth was one obvious example of that. I imagine there will be others as we go through time where our ability to be on the inside, but not compromised, is extremely powerful.”
40. From 2005 to 2007, upon information and belief, JPMC gathered non-public information from Rotella and the other former .JPMC executives placed at Washington Mutual relating to Washington Mutual’s banking and mortgage markets, and statuses in those markets. In addition, JPMC gathered this information regarding Washington Mutual and other banks from government regulators and monetary policymakers at the Of?ce of the Comptroller of the Currency, OTS, FDIC, Federal Reserve, and other individuals in governmental positions of power. JPMC used this information to build a “fortress balance sheet,” from which it could later acquire Washington Mutual.
41. In 2006, Washington Mutual’s credit rating was securely investment grade. However, beginning in 2006 and continuing through 2008, lending institutions faced a dif?cult business environment due to a deteriorating housing market, an increase in mortgage delinquencies and foreclosures, illiquidity and loss of value of asset-backed and mortgage-backed securities, and a general downturn in the global credit markets. 42. In April of 2008, despite having posted signi?cant losses, Washington Mutual’scredit was still investment grade and the company was solvent and liquid. At this time, JPMC made its ?rst attempt to acquire Washington Mutual, making a public offer to purchase Washington Mutual for $8 a share, or about $7 billion, in JPMC stock. Washington Mutual declined, and instead accepted a capital infusion by a private investor group of approximately $7 billion, at $8.75 per share.
43. The rejection did not deter JPMC, however. Instead, upon information and belief, JPMC began to exert pressure on the OTC, FDIC and other regulators to intensify oversight and reporting requirements of Washington Mutual, with the end goal of closing Washington Mutual in a seamless transfer of the valuable, cherry-picked, assets, while leaving the liabilities, to .JPMC. his was not the ?rst time JPMC pressured government of?cials to gain undue advantage in its efforts to bid for an ailing competitor. As Reuters and the Washington Post reported in articles published on October 22, 2008, according to an “anonymous but speci?c” complaint to Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee, the general counsel for JPMC and the enforcement director for the U.S. Securities and Exchange Commission had inappropriately discussed the details of SEC investigations into Bear Stearns in relation to JPMC’s efforts to acquire Bear Stearns in March of 2008. Sen. Grassley, in a letter to SEC Chairman Christopher Cox, stated that Linda Thomsen, the SEC enforcement director, gave inside information to Stephen Cutler, the General Counsel ofJPMC (and himself a former SEC enforcement director), about the state of SEC investigations intoBear Stearns, which enabled JPMC to put together a low-ball bid to purchase Bear Stearns. JPMC ultimately won the Bear Stearns bidding with a bid of $2 per share, after the company had previously traded at $30.85 per share. JPMC later agreed to raise the price to about $10 per share. As Sen. Grassley’s stated regarding JPMC’s misuse of its personal relationship with an SEC of?cial, “This inside information, gotten through a personal relationship, would be critical in helping Morgan put together a low-bid Bear and the US government.”
45. In the Washington Mutual case, because of JPMC’s pressure, U.S. Treasury helping Secretary Henry Paulson in July of 2008 personally telephoned Washington Mutual’s Chief Executive Of?cer and advised him to sell Washington Mutual to JPMC. As reported in November 9, 2008 Seattle Times article citing Washington Mutual executives, Paulson warned the Washington Mutual’s then-CEO, Kerry Killinger, “You should have sold to JP Morgan Chase in the spring, and you should do so now. Things could get a lot more dif?cult for you.”
46. During the summer of 2008, Defendants (JP Morgan Chase) engineered a campaign involving adverse media “leaks,” stock sales, and deposit withdrawals designed to distort the market and regulatory perception of Washington Mutual’s ?nancial health. Defendants (JP Morgan Chase) continued this campaign up until the seizure of WMB.
47. On or about September 4, 2008, the FDIC and JPMC discussed FDIC’s oversight of Washington Mutual, according to a Wall Street Journal article dated September 29, 2008. The article cited “people familiar with the situation,” who stated that the FDIC told JPMC that “the FDIC was carefully monitoring WaMu and that a seizure of its assets was likely.” In addition, the FDIC told JPMC it wanted to immediately auction off the assets after the seizure. Therefore, upon information and belief, at or about the time of this communication, JPMC and the FDIC agreed to a plan whereby federal regulators would seize WMB and certain valuable assets would be passed to .JPMC, and certain liabilities excluded. From September 4, 2008 to September 25, 2008, JPMC and FDIC continued discussions regarding seizure of WMB and JPMC’s purchase of WMB’s valuable assets and stripping away WMB’s liabilities.
48. During late July and early September of 2008, the FDIC exerted pressure upon the OTS to seize WMB. A Wall Street Journal article dated September 27, 2008, stated that this pressure, and OTS’s reluctance to downgrade Washington Mutual, continued for weeks.
49. On September 7, 2008, Washington Mutual entered into a memorandum of understanding with the OTS concerning “aspects of the banks operations, principally in several areas of its risk management and compliance functions, including its Bank Secrecy Act. compliance program.” In this memorandum of understanding, Washington Mutual committed to provide the oars “an updated, multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance.” However, the business plan did not require the company to raise capital, increase liquidity or make changes to the products and services it provides to customers.
50. On September II, 2008, Washington Mutual released preliminary third quarter ?nancial results, which showed that the company was well capitalized and liquid. In its release, the company stated “Mlle company continues to maintain a strong liquidity position with approximately $50 billion of liquidity from reliable funding sources. The company’s tier I leverage and total risk-based capital ratios at June 30, 2008 were 7.76% and 13.93%, respectively, which were signi?cantly above the regulatory requirements for well-capitalized institutions. The company expects both ratios to remain signi?cantly above the levels for well-capitalized institutions at the end of the third quarter.”
51. On or about September 12, Washington Mutual hired Goldman Sachs as an advisor to help ?nd a buyer for Washington Mutual.
52. On September 12, 2008, the Bloomberg ?nancial news organization reported that .JPMC was in “advanced talks” to buy Washington Mutual. Negotiations were described as being conducted “at the highest levels of both companies” and included JPMC’s CEO Dimon and Washington Mutual’s CEO Alan Fishman. The government was not involved. 53. Based on its ongoing negotiations with the FDIC and the manner in which .JPMC later obtained Washington Mutual’s assets, JPMC’s “negotiations” with Washington Mutual were a sham and a pretext designed to gain access Washington Mutual’s con?dential ?nancial information. JPMC misrepresented to Washington Mutual that it would negotiate in good faith for the purchase of the company. It is apparent from the fact that the Washington Mutual board of directors and of?cers were unaware of the inuninent seizure and simultaneous sale of WMB to JPMC, that JPMC did not disclose that it was negotiating separately with the FDIC for the seizure of WMB and purchase of its asgets. The fact that JPMC made no serious offer to Washington Mutual during September of 2008 for the purchase of the entire entity, but instead negotiated with the FDIC for the purchase of the cherry-picked assets out of receivership indicates that JPMC never had any intention to directly deal with Washington Mutual regarding purchase of Washington Mutual or any part thereof. ——————————————————————- 20. In September of 2008, motivated by greed and unrestrained by moral or legal boundaries, the Defendants (JP Morgan Chase) exploited a perceived liquidity crisis in the banking industry to improperly and illegally take advantage of the ?nancial dif?culties of Washington Mutual, Inc. (“WM1'), the nation’s largest savings and loan association. Defendants (JP Morgan Chase) used the crisis as a backdrop and lever to negotiate the seizure and sale of the banking operations of WMI–Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT (together, “Washington Mutual Bank” or “WMB”)–stripped of liabilities, from federal regulators. In negotiating with the federal regulators, JPMC misused con?dential ?nancial information of WMI and WMB (collectively referred to as “Washington Mutual”) that it had gained through deceptive means and under false pretenses. JPMC’s purchase of WashingtonMutual’s core operations from federal regulators culminated a years-long scheme designed to wrongfully exploit the opportunity of a ?nancial crisis in Washington Mutual.
21. On September 25, 2008, after weeks of pressure by the Defendants (JP Morgan Chase) upon Federal Deposit Insurance Corporation (the “FDIC”) and other federal regulators, the FDIC and the Of?ce of Thrift Supervision (the “OTS”) agreed to the Defendants (JP Morgan Chase)’ terms. On that day, the OTS seized Washington Mutual Bank (“WMB”), passed the bank to the FDIC as receiver, and the FDIC sold the crown jewels of Washington Mutual to ..JPMC at a ?re sale price. In the deal, JPMC acquired the extensive banking franchise of Washington Mutual for the severely undervalued sum of 31.9 billion.
22. As a result of the FDIC deal, according to JPMC’s fourth quarter 2008 ?nancial reports, JPMC gained 2237 branches and $126.3 billion in deposits (an increase of 63%), and reported a positive impact upon its retail ?nancial services, card services and commercial banking divisions. More tellingly, in this fourth quarter 2008 statement, JPMC admitted that the fair value of the assets it obtained from Washington Mutual was $1.3 billion more than the $1.9 billion it paid, and booked a gain in that amount. This $1.3 billion extraordinary gain was in addition to the $581 million extraordinary gain reported on October 15, 2008 as being the 5 result of the acquisition of Washington Mutual’s assets. As JPMC stated in the footnote to its fourth quarter 2008 Consolidated Financial Highlights statement, explaining the gain:
“IPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price which resulted in negative goodwill. In accordance with SFAS 141, non?nancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down non?nancial assets is recognized as an extraordinary gain.”
23. The deal capped a years-long effort on the part of Defendants (JP Morgan Chase) to acquire Washington Mutual and expand its operations to the West Coast As JPMC’s Chief Executive Of?cer of Retail Financial Services, Charlie Scharf, stated in an October 2, 2008 letter to Washington Mutual employees after the acquisition: “During the last few years as we have been building our own business, we kept tract of banks that would complement our franchise and help us become a better bank for our customers, our employees and our shareholders. Washington Mutual consistently was at the top of the list.”
24. As early as 2004, JPMC and JPMC’s then-Chief Operating Of?cer and later Chief Executive Of?cer, lames “Jamie” Dimon, set a goal to acquire the Washington Mutual banking franchise and geographic market. In the months and years prior to the seizure of Washington Mutual by the Of?ce of Thrift Supervision on September 25, 2008, the Defendants (JP Morgan Chase) developed and executed a scheme designed to achieve this end.
25. Defendants (JP Morgan Chase)’ plan ?rst entailed strategically placing key personnel to gather information regarding Washington Mutual’s strategic business decisions and ?nancial health. In addition, Defendants (JP Morgan Chase) later falsely negotiated with Washington Mutual as a good faith bidder during the summer of 2008, when Washington Mutual sought a purchaser for itself. Instead of dealing honestly with Washington Mutual, JPMC used its “inside position” to build a pro?table bid to the FDIC. The Defendants (JP Morgan Chase) worked extensively with the FDIC to design bidding parameters that would suit JPMC’s needs, and which would rule out other potential bidders. 26. In this way, the Defendants (JP Morgan Chase) were able to strip the liabilities away from the valuable revenue-producing assets of Washington Mutual, and to obtain those assets. All of these acts were done with the knowledge of contractual liabilities owed to Plaintiffs and the intent to destroy Washington Mutual’s ability to ful?ll those obligations. 27. Following the dismantling of Washington Mutual, because of the dubious circumstances of its closure, the United States Attorney’s Of?ce, Western District of Washington, announced that a multi-agency investigation had been launched to scrutinize the activities of the participants to Washington Mutual’s closure. As U.S. Attorney Jeffrey C. Sullivan stated on October 15, 2008, “Due to the intense public interest in the failure of Washington Mutual, 1 want to assure our community that federal law enforcement is examining activities at the bank to determine if any federal laws were violated. The FBI, Federal Deposit Insurance Corporation Of?ce of Inspector General (FDIC-0IG), Securities and Exchange Commission (SEC) and the Internal Revenue Service Criminal Investigations (IRS-CI) have all provided investigators to our task force. a as For more than 100 years Washington Mutual was a highly regarded ?nancial institution headquartered in Seattle. Given the signi?cant losses to investors, employees, and our community, it is fully appropriate that we scrutinize the activities of the bank, its leaders, and others to determine if any federal laws were violated.” When asked about the investigation by the Wall Street Journal for an article appearing the next day, JPMC declined to comment. The investigation, upon information and belief, is ongoing. Statement of Claim
28. This is an action for Tortious Interference with an Existing Contract, Unjust Enrichment and Breach of Contract.
29. The Plaintiffs own common stock of Washington Mutual, Inc. (“WMI”) and debt securities of WMI and Washington Mutual Bank (“WMB”) (collectively referred to as “Washington Mutual”).
30. On September 25, 2008, JPMC, in order to gain money and market share, wrongfully ?nalized its scheme to strip away valuable assets of Washington Mutual without properly compensating the company or its stakeholders, including the Plaintiffs. JPMC’s scheme was a prime example of JPMC’s capitalizing on its position of strength through use of unfair and illegal business practices. For JPMC, strength, power and in?uence justi?ed the pursuit of pro?ts by any means available.
31. One of ‘FMC’s “strengths” was its “insider” status through its in?uence with banking regulators and policymakers and its access to information through its business dealings with clients, associates and other parties. When JPMC identi?ed a business target, it improperly used its in?uence to gather con?dential information from and about these companies. Upon information and belief .JPMC then created and exploited opportunities to wrongfully disclose or use the con?dential information to achieve its business purposes at the expense of these companies.
32. JPMC’s scheme to strip away Washington Mutual’s value from its stakeholders involved, among other things, misusing access to government regulators to gain non-public information in order to gain a competitive advantage and wrongfully in?uence government policy and actions. In addition, JPMC deceptively gained access to Washington Mutual’s con?dential ?nancial records through the use of “plants” and “moles” engaged in corporate espionage at Washington Mutual. JPMC misused the wrongfully obtained con?dential information of Washington Mutual to bargain and work with federal regulators for the seizure and sale of Washington Mutual’s assets. JPMC leaked false and harmful information to news media, which incited depositors to make withdrawals from their Washington Mutual accounts. JPMC obstructed Washington Mutual’s efforts to sell itself in a fair bidding process.
Finally, JPMC exerted improper in?uence over government regulators to prematurely seize Washington Mutual, a solvent and liquid bank, and to sell assets of Washington Mutual without an adequate or fair bidding process. JP Morgan takes the valuable assets of Washington Mutual and destroys the property rights of shareholders and contract rights of debt holders.
33. Just prior to September 25, 2008, Washington Mutual was the nation’s largest savings and loan association, specializing in providing home mortgages, credit cards and other retail lending products and services. Washington Mutual had more than 43,000 employees, more than 2,200 branch of?ces in 15 states and $188.3 billion in deposits. WMB was the wholly_owned-subsidiary of WMI, a-savings-bank-holding-company a thrift charter
34.WMB and WMI were both subject to regulation and examination by the Of?ce of Thrift Supervision (the “OTS”), an agency of the United States Department of the Treastuy.
In addition, WMB was supervised by the FDIC, among other state and federal agencies. charter.
35. In and around 2004, JPMC’s then-Chief Operating Of?cer, James Dimon, resolved to improve JPMC’s lack of market presence on the West Coast and in the south. Dimon would, in 2005, take over JPMC as Chairman and Chief Executive Of?cer. JPMC’ sshareholders had been clamoring for Washington Mutual’s network of bank branch holdings on the West Coast and south, and its large deposit base. Dimon, in response, promised to acquire banks in “fast-growing markets such as Florida, New Jersey and California,” according to a March 28, 2005 Business Week article.
Article Continues Below 36. On July 29, 2004, at a company meeting with JPMC’s branch managers, Dirnon declared “Retail is not only here to stay, but you are a tremendous asset” Dimon promised to push to expand the retail business. Later that month, Dimon told analysts on a conference call that JPMC would be in position to make a “major acquisition” by early 2006. Upon information and belief, the intended “major acquisition” referred to by Dimon was Washington Mutual.
37. In January of 2005, in order to place insiders in his targeted company, Dimon sent a number of senior and junior executives to Washington Mutual to begin “new chapters”in their lives. The most signi?cant transfer to Washington Mutual was Stephen J. Rotella, an I8-year veteran of WMorgan Chase, who held the posts of chief executive of?cer for Chase Home Finance, executive vice president for JPMorgan Chase, and member of the JPMorgan Chase executive committee. At Washington Mutual, Rotella took the job of president and chief operating of?cer.
38. In addition to Rotella, at least four senior vice presidents and a chief ?nancial of?cer transferred from JPMC to Washington Mutual as plants in late 2004 and 2005. These included, Steve Fortunato, a 12 year veteran ofJPMC serving as Senior Vice President, Chase Home Finance, who was responsible at JPMC for, among other things, merger analysis, forecasting and mortgage servicing valuation; Tai Bindm, Chief Financial Of?cer and Executive Vice President for Chase Home Finance; John Berens, senior vice president of default services, managing over 2,000 JPMC employees; Youyi Chen, PhD, senior vice president responsible for managing the interest rate risks of JP Morgan Chase’s mortgage servicing rights (MSR) portfolio; and Bill Murray, a senior vice president, led the MSR valuation, pricing and reporting functions for JPMC’s Capital Markets group. Upon information and belief, Rotella and the other JPMC executives that transferred to Washington Mutual understood and agreed to help with Dimon’s long term plan and goal for JPMC to acquire Washington Mutual, and thereafter provided substantial assistance to that end.
39. JPMC’s and CEO Dimon’s strategy of gaining an insider position was a well-trodden approach for them. They used this approach in 2006 to gain con?dential information regarding a client’s natural gas derivatives trading positions, Amaranth. JPMC and Dimon used this con?dential information and misstatements about Amaranth’s solvency to prevent attempts to sell a block of its natural gas position to an outside party. JPMC inserted itself into the deal and reaped a pro?t of more than $725 million. As reported by an online news source on November 15, 2006 and later cited in Amaranth’s lawsuit against JPMC, a JPMC executive boasted of JPMC’s ability to leverage its inside information sources: “We are not exposed from a credit perspective, materially, which allows us to respond quickly to opportunities when they come up. Amaranth was one obvious example of that. I imagine there will be others as we go through time where our ability to be on the inside, but not compromised, is extremely powerful.”
40. From 2005 to 2007, upon information and belief, JPMC gathered non-public information from Rotella and the other former .JPMC executives placed at Washington Mutual relating to Washington Mutual’s banking and mortgage markets, and statuses in those markets.
In addition, JPMC gathered this information regarding Washington Mutual and other banks from government regulators and monetary policymakers at the Of?ce of the Comptroller of the Currency, OTS, FDIC, Federal Reserve, and other individuals in governmental positions of power. JPMC used this information to build a “fortress balance sheet,” from which it could later acquire Washington Mutual.
41. In 2006, Washington Mutual’s credit rating was securely investment grade. However, beginning in 2006 and continuing through 2008, lending institutions faced a dif?cult business environment due to a deteriorating housing market, an increase in mortgage delinquencies and foreclosures, illiquidity and loss of value of asset-backed and mortgage-backed securities, and a general downturn in the global credit markets.
42. In April of 2008, despite having posted signi?cant losses, Washington Mutual’scredit was still investment grade and the company was solvent and liquid. At this time, JPMC made its ?rst attempt to acquire Washington Mutual, making a public offer to purchase Washington Mutual for $8 a share, or about $7 billion, in JPMC stock. Washington Mutual declined, and instead accepted a capital infusion by a private investor group of approximately $7 billion, at $8.75 per share.
43. The rejection did not deter JPMC, however. Instead, upon information and belief, JPMC began to exert pressure on the OTC, FDIC and other regulators to intensify oversight and reporting requirements of Washington Mutual, with the end goal of closing Washington Mutual in a seamless transfer of the valuable, cherry-picked, assets, while leaving the liabilities, to .JPMC. his was not the ?rst time JPMC pressured government of?cials to gain undue advantage in its efforts to bid for an ailing competitor. As Reuters and the Washington Post reported in articles published on October 22, 2008, according to an “anonymous but speci?c” complaint to Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee, the general counsel for JPMC and the enforcement director for the U.S. Securities and Exchange Commission had inappropriately discussed the details of SEC investigations into Bear Stearns in relation to JPMC’s efforts to acquire Bear Stearns in March of 2008. Sen. Grassley, in a letter to SEC Chairman Christopher Cox, stated that Linda Thomsen, the SEC enforcement director, gave inside information to Stephen Cutler, the General Counsel ofJPMC (and himself a former SEC enforcement director), about the state of SEC investigations intoBear Stearns, which enabled JPMC to put together a low-ball bid to purchase Bear Stearns. JPMC ultimately won the Bear Stearns bidding with a bid of $2 per share, after the company had previously traded at $30.85 per share. JPMC later agreed to raise the price to about $10 per share. As Sen. Grassley’s stated regarding JPMC’s misuse of its personal relationship with an SEC of?cial, “This inside information, gotten through a personal relationship, would be critical in helping Morgan put together a low-bid Bear and the US government.”
45. In the Washington Mutual case, because of JPMC’s pressure, U.S. Treasury helping Secretary Henry Paulson in July of 2008 personally telephoned Washington Mutual’s Chief Executive Of?cer and advised him to sell Washington Mutual to JPMC. As reported in a Morgan November 9, 2008 Seattle Times article citing Washington Mutual executives, Paulson warned the Washington Mutual’s then-CEO, Kerry Killinger, “You should have sold to WMorgan Chase in the spring, and you should do so now. Things could get a lot more dif?cult for you.”
46. During the summer of 2008, Defendants (JP Morgan Chase) engineered a campaign involving adverse media “leaks,” stock sales, and deposit withdrawals designed to distort the market and regulatory perception of Washington Mutual’s ?nancial health. Defendants (JP Morgan Chase) continued this campaign up until the seizure of WMB.
47. On or about September 4, 2008, the FDIC and JPMC discussed FDIC’s oversight of Washington Mutual, according to a Wall Street Journal article dated September 29, 2008. The article cited “people familiar with the situation,” who stated that the FDIC told JPMC that “the FDIC was carefully monitoring WaMu and that a seizure of its assets was likely.” In addition, the FDIC told JPMC it wanted to immediately auction off the assets after the seizure. Therefore, upon information and belief, at or about the time of this communication, JPMC and the FDIC agreed to a plan whereby federal regulators would seize WMB and certain valuable assets would be passed to .JPMC, and certain liabilities excluded. From September 4, 2008 to September 25, 2008, JPMC and FDIC continued discussions regarding seizure of WMB and JPMC’s purchase of WMB’s valuable assets and stripping away WMB’s liabilities.
48. During late July and early September of 2008, the FDIC exerted pressure upon the OTS to seize WMB. A Wall Street Journal article dated September 27, 2008, stated that this pressure, and OTS’s reluctance to downgrade Washington Mutual, continued for weeks.
49. On September 7, 2008, Washington Mutual entered into a memorandum of understanding with the OTS concerning “aspects of the banks operations, principally in several areas of its risk management and compliance functions, including its Bank Secrecy Act. compliance program.” In this memorandum of understanding, Washington Mutual committed to provide the oars “an updated, multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance.” However, the business plan did not require the company to raise capital, increase liquidity or make changes to the products and services it provides to customers.
50. On September II, 2008, Washington Mutual released preliminary third quarter ?nancial results, which showed that the company was well capitalized and liquid. In its release, the company stated “Mlle company continues to maintain a strong liquidity position with approximately $50 billion of liquidity from reliable funding sources. The company’s tier I leverage and total risk-based capital ratios at June 30, 2008 were 7.76% and 13.93%, respectively, which were signi?cantly above the regulatory requirements for well-capitalized institutions. The company expects both ratios to remain signi?cantly above the levels for well-capitalized institutions at the end of the third quarter.”
51. On or about September 12, Washington Mutual hired Goldman Sachs as an advisor to help ?nd a buyer for Washington Mutual.
52. On September 12, 2008, the Bloomberg ?nancial news organization reported that .JPMC was in “advanced talks” to buy Washington Mutual. Negotiations were described as being conducted “at the highest levels of both companies” and included JPMC’s CEO Dimon and Washington Mutual’s CEO Alan Fishman. The government was not involved.
53. Based on its ongoing negotiations with the FDIC and the manner in which .JPMC later obtained Washington Mutual’s assets, JPMC’s “negotiations” with Washington Mutual were a sham and a pretext designed to gain access Washington Mutual’s con?dential ?nancial information. JPMC misrepresented to Washington Mutual that it would negotiate in good faith for the purchase of the company. It is apparent from the fact that the Washington Mutual board of directors and of?cers were unaware of the inuninent seizure and simultaneous sale of WMB to JPMC, that JPMC did not disclose that it was negotiating separately with the FDIC for the seizure of WMB and purchase of its asgets. The fact that JPMC made no serious offer to Washington Mutual during September of 2008 for the purchase of the entire entity, but instead negotiated with the FDIC for the purchase of the cherry-picked assets out of receivership indicates that JPMC never had any intention to directly deal with Washington Mutual regarding purchase of Washington Mutual or any part thereof.
54. JPMC required, as a term of its “negotiations” with Washington Mutual, that JPMC be permitted access to Washington Mutual’s ?nancial non-public, con?dential, ?nancial records. In return for being granted access to Washington Mutual’s con?dential and proprietary ?nancial information, JPMC, upon information and belief, executed an agreement, which it had no intention of abiding by, to keep con?dential and not disclose any and all con?dential information gathered by JPMC as part of its due diligence in examining Washington Mutual’s ?nancial circumstances.
55. Furthermore, in its dealings with Washington Mutual, JPMC implicitly represented to Washington Mutual that it would abide by the rules and expectations set forth in JPMC’s own Code of Conduct (the “Code”). However, in dealing with Washington Mutual, JPMC failed to meet the ethical standards and rules contained in its Code.
56. The Code, which is publically available on JPMC’s web site, “sets forth certain minimum expectations that JPMorgan Chase has for employees and directors of WMorgan Chase & Co. and its direct and indirect subsidiaries.” The Code states that “We are all expected to conduct the ?rm’s business in accordance with the highest ethical standards, respecting the ?rm’s customers, suppliers, and other business coimterparties, dealing responsibly with the ?rm’ s assets, and complying with applicable legal and regulatory requirements.” As one of JPMC’s executives boasted, “Jamie Dimon and I are proud of the 200-year tradition of integrity on which this ?rm is built .”
57. The Code of Conduct states regarding “Con?dential Information, Public Communication, Data Privacy”: “We are all responsible for the safeguarding of con?dential information, whether it is information entrusted to us by our customers, information regarding WMorgan Chase’s businesses and activities, or information about other employees. • • You may not.. directly or indirectly use or disclose to anyone any such con?dential information, except as permitted by the Code and other policies applicable to you • * • (d) Do not disclose con?dential information to anyone outside the ?rm unless you are authorized to do so. Where such disclosure is authorized, a con?dentiality or privacy agreement may be required; check with the Legal Department”
58. In gaining access to Washington Mutual’s con?dential records, JPMC and Dimon falsely promised that JPMC would maintain the secrecy of Washington Mutual ?nancial information. However, neither .JPMC nor Dimon ever had any intention of abiding by its Code of Conduct or maintaining the con?dentiality of Washington Mutual fmancial records. Upon information and belief, JPMC instead disclosed information as it saw ?t to news media, government regulators, and investors, in such way as promoted its scheme. In addition, JPMC used its insider status to aggressively gather con?dential information from Washington Mutual, which it then analyzed in order to accurately estimate the value of WMB deposits, mortgage portfolio and other assets in order to make a detailed and pro?table prearranged bid to the FDIC for the purchase of those assets. JPMC was therefore well prepared when the FDIC asked for bids to purchase WMB’s assets some two weeks later. 59. On September 12, 2008, JPMC froze the assets of Lehman Brothers, thus precipitating Lehman Brothers’ collapse and sending ?nancial markets into turmoil. The resulting fear and uncertainty in the ?nancial markets further hindered Washington Mutual’s efforts to ?nd a bidder for itself.
60. During this time, news media ran many stories that discussed Washington Mutual’s unsuccessful efforts to sell itself, and other aspects of the company’s ?nancial health. Many of these news stories were sourced by unnamed “investment bankers” close to the negotiations. Asa CNN Money article dated September 18, 2008 stated regarding the merger rumors about Washington Mutual and other banks,” You have bankers throwing rumors around trying to see bow the market would react to things.” The Wall Street Journal on September 19, 2008 reported that HNC was reviewing Washington Mutual’s books, “which are packed with shaky mortgages,” and was “biding its time on a potential bid,” according to “people close to J.P. Morgan.” By September 23, 2008, the Financial Times was reporting that “people familiar with the talks” involving the Washington Mutual purchase said that the OTS was pushing for a speedy solution, but “folne challenge for an outright sale of Washington Mutual is that the acquiring bank would have to take on WaMu’s troubled mortgage portfolio, as well as the bank’s litigation risk.” Between September 15, 2008 and September 25, 2008, WIVIB customers withdrew $16.7 billion in deposits, thus achieving JPMC’s goal of creating a bank run.
61. In September of 2008, the Defendants (JP Morgan Chase) shared the con?dential information with outside investors in order to arrange an $8 billion capital infusion that would enable JPMC to maintain its Tier I capital ratio. An investigative article published by the Wall Street Journal on September 29, 2008 details how JPMC contacted 10 major ?nancial ?rms, many of whom were signi?cant JPMC shareholders, asked them if they were interested in investing in the “strategic acquisition of a retail bank,” and shared material non-public information relating to the acquisition. Nine out the ten ?rms contacted chose to invest, and JPMC was able to raise over SI 1.5 billion within 24 hours after the FDIC awarded JPMC WMB’s assets in late September of 2008.
62. On Tuesday, September 23, 2008, according to a September 29, 2008 Wall Street Journal article, the FDIC purportedly sought bids from select bidders, including JPMC, for the sale of WM13. Upon information and belief, an agreement had already been reached at this time between the FDIC and JPMC for the seizure and sale of WMB to JPMC. In addition, the requirements for a “conforming bid” had been reached after extensive negotiations between the FDIC and JPMC. Among other things, the umedacted portions of JPMC’s “bid” to the FDIC dated September 24, 2008, obtained through Plaintiffs’ Freedom of Information Act request, refer to multiple discussions between JPMC and the FDIC, OTS, OCC and other unspeci?ed colleagues of the FDIC.
63. JPMC was the only company that submitted a conforming bid. According to records obtained from the FDIC by way of Plaintiffs’ FOIA request, the only other bid was from Citigroup, Inc. This bid, by its own admitted terms, was not a conforming bid under the structure the FDIC offered. As it was nonconforming, the FDIC rejected this bid. On September 24, 2008, the FDIC awarded JPMC the bid for WMB’s assets.
On Thursday evening September 25, 2008, the OTS seized WMB and placed WMB into receivership with the FDIC. 65. Upon information and belief, the seizure of WMB was conducted a day earlierthan had been originally planned due to an expected legislative banking relief plan—the “bailout”—that appeared imminent earlier that week. On Tuesday, September 23, 2008, Federal Reserve Chairman Ben Bemanke and Treasury Secretary Henry Paulson testi?ed before the Senate Banking Committee regarding the dire implications for the broader economy if the bailout was not passed by the end of the week. The $700 billion ?nancial bailout would have provided ?nancial relief to Washington Mutual as it ultimately did for other non-seized national ?nancial institutions, thus making seizure more dif?cult to justify. 66. In addition, two weeks later, the FDIC raised the ceiling for deposit insurance from $100,000 to $250,000. Many of the deposits Washington Mutual lost in mid-September came from accounts exceeding the earlier $100,000 limit.
67. On September 25, 2008, only two days after the FDIC sought a bidder for the assets of Washington Mutual Bank, the FDIC and JPMC signed a “Whole Bank Purchase and Assumption” agreement whereby the FDIC, as receiver, sold WMB assets, including its branches, deposit liabilities, loan portfolio, and covered bonds and secured debts to JPMC for $1.9 billion. This purchase price, which got JPMC the most valuable assets of Washington Mutual without any of the liabilities or litigation risk, was well below JPMC’s offer of more than $7 billion for the entire Washington Mutual company—liabilities and assets—made only ?ve months prior. JPMC did not acquire obligations to unsecured debt holders such as the Plaintiffs’ in the transaction, or any litigation liability of WMI or WM11. .JPMC stated that it expected to take a write-down of $30 billion to $54 billion on the acquired loan portfolio. 68. In return, JPMC received 2,237 bank branches, $123.3 billion in deposits, and a signi?cant increase in market presence in California, Oregon, Washington and Florida, and strengthening of market presence in several other states. JPMC gained $176 billion in home loans, minus appmximately $30 billion in write downs. JPMC expected the deal to generate $12 billion in capital over the next four years. After the deal, JPMC was the second largestretail bank in the United States. With its third and fourth quarter fmancial reports for 2008, JPMC reported gains of almost $1.9 billion, due to its admission (buried in a ?nancial statement footnote) that the fair value of the WMB’s assets acquired exceed the $1.9 billion purchase price it paid to the FDIC.
69. Following JPMC’s acquisition of the Washington Mutual prime assets, Rotella was released from employment by JPMC. As a result of the termination, Rotella became eligible for an approximately $20 million cash severance, plus millions more in noncash severance. Upon information and belief, Defendants (JP Morgan Chase) JPMC and their CEO Dimon intended this result when Rotella was sent to Washington Mutual, and rewarded Rotella for his efforts by payment of $20 million as provided in his employment agreement. 70. WM1, on September 26, 2008, having lost its primary income-producing asset, ?led for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, Case No. 08-CV-12229-MFW. WM1 as it now exists lacks suf?cient income-producing assets to meet its contractually mandated debt obligations to the Plaintiffs who own VIM! bonds. WMI bonds, and the underlying contractual rights, are therefore substantially impaired. WMI stock is worthless.
71. The WMB bonds (also held by Plaintiffs) are subject to liquidation as part of the FDIC receivership. Upon information and belief, these Bonds are worthless. The FDIC, in an informational sheet provided to claimants in Washington Mutual Bank states, “The FDIC as Receiver for Washington Mutual Bank does not anticipate that subordinated debt holders of the bank will receive any recovery on their claims.”
