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Feds seem to like California for Wall Street fraud cases

October 25, 2013|By Andrew Tangel
  • James Dimon, chairman and chief executive of JPMorgan Chase, arrives at the Justice Department in Washington last month. A civil fraud case against JPMorgan Chase has been filed in Sacramento.
James Dimon, chairman and chief executive of JPMorgan Chase, arrives at… (Manuel Balce Ceneta / Associated…)

NEW YORK -- Should federal prosecutors favor California as backdrop for cases against Wall Street firms?

Earlier this year, there was the Justice Department's lawsuit against Standard & Poor's, which prosecutors accused of fueling the financial crisis with dubious ratings of mortgage investments. That case was filed in federal court in Los Angeles.

Now there is another civil fraud case against a Wall Street firm -- this one out of Sacramento. As The Times reports Friday, U.S. Atty. Benjamin Wagner's threatened lawsuit over mortgage investments against JPMorgan Chase & Co. could help lead to a massive $13-billion settlement between the bank and Justice Department.

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John Coffee, a securities law expert at Columbia University, predicts the Golden State could become the venue of choice if the federal government brings more cases stemming from the housing bust and financial crisis.

California communities were among the hardest hit by the mortgage crisis, Coffee noted. In New York, juries might have a “forgive and forget attitude” when it comes to financial misdeeds -- especially if they include anyone who works on Wall Street.

“Prosecutors realize they have a much more sympathetic, hospitable forum in California," Coffee said. “In Sacramento, the chance of an investment banker in the jury pool is pretty small.”

Then again, a jury in Manhattan handed a victory to the federal government this week in its civil fraud case against Bank of America Corp. The case involved faulty mortgages sold by Countrywide Financial Corp. to mortgage giants Fannie Mae and Freddie Mac. BofA bought Countrywide in 2008.

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