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With the return of Matt Taibbi to Rolling Stone Magazine comes an amazing story about how the depraved crimes of JPMorgan Chase were covered up by Attorney General Eric Holder despite there being a whistleblower willing to testify. The whistleblower is Alayne Fleischmann, a former lawyer who worked for JPMorgan Chase overseeing mortgage securities. Fleischmann has been talking to federal regulators for years in hopes of seeing justice done for JPM’s role in causing the 2008 financial crisis by selling fraudulent mortgage securities.

Fleischmann details how those in charge of due diligence at the Too Big To Fail bank were slowly beaten down and ignored by senior managers after being told the financial products JPMorgan were selling were fraudulent. That executives at JPM knew, for a fact, that they were committing securities fraud in the mortgage market whose meltdown would lead to millions losing their homes and hundreds of billions of taxpayer dollars going to bail out Wall Street.

Part of the strategy from managers to avoid transparency was to tell Fleischmann and other employees to not send them emails – i.e. not put anything in writing – and it only got worse from there.

When Fleischmann and her team reviewed random samples of the loans, they found that around 40 percent of them were based on overstated incomes – an astronomically high defect rate for any pool of mortgages; Chase’s normal tolerance for error was five percent. One mortgage in particular that sticks out in Fleischmann’s mind involved a manicurist who claimed to have an annual income of $117,000. Fleischmann figured that even working seven days a week, this woman would have needed to work 488 days a year to make that much. “And that’s with no overhead,” Fleischmann says. “It wasn’t possible.”

But when she and others raised objections to the toxic loans, something odd started happening. The number-crunchers who had been complaining about the loans suddenly began changing their reports. The process she describes is strikingly similar to the way police obtain false confessions: The interrogator verbally abuses the target until he starts producing the desired answers. “What happened,” Fleischmann says, “is the head diligence manager started yelling at his team, berating them, making them do reports over and over, keeping them late at night.” Then the loans started clearing.

The drive to do more business is one thing, but having diligence employees change reports and allow knowingly fraudulent financial products to be sold to others is smoking gun fraud – JPMorgan knew it was selling junk because it had been told explicitly by its own employees that the financial products were junk. In one case Fleischmann witnessed a diligence employee literally put his hands up when caving in to clear the loans to be sold – despite previously being adamant that the loans were fraudulent and shaking his head the whole time. The defect rate dropped from 40% to 10%.

So why wasn’t this testimony ever heard in court? Though Fleischmann had signed a non-disclosure agreement (which JPM will likely be suing her for breaking by talking to Taibbi) those agreements do not stop her from testifying on criminal actions. The reason she has not made it to court is due a dishonest cover up campaign launched by Attorney General Eric Holder to ensure his friends and former clients on Wall Street never faced substantive civil penalties nor criminal prosecution.

While Holder rides off into the sunset (likely going back to Wall Street) Fleischmann’s career has been ruined and she may face personal bankruptcy for telling the truth and speaking out. Quite a country we have, isn’t it?

Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.