BY JONATHAN STEMPEL
NEW YORK Mon Mar 31, 2014 6:04pm EDT
The offices of JP Morgan in the Canary Wharf district of London, January
28, 2014.
CREDIT: REUTERS/SIMON NEWMAN
RELATED TOPICS
(Reuters) - JPMorgan Chase & Co must face a lawsuit from
shareholders accusing it of securities fraud by misleading them about its
ability to manage risk, which surfaced when it lost $6.2 billion in the
"London Whale" scandal.
U.S. District Judge George Daniels in Manhattan said shareholders could
pursue claims that JPMorgan, Chief Executive Jamie Dimon and former Chief
Financial Officer Douglas Braunstein knowingly hid the increased risks that
the bank's Chief Investment Office had been taking in early 2012.
In separate decisions also issued on Monday, the judge also dismissed a
lawsuit brought against JPMorgan directors, and a lawsuit by employees over
their losses from investing in the bank's stock in their retirement
accounts.
The $6.2 billion loss was linked to trades by Bruno Iksil, a French
national who had worked in a bank office in London.
Daniels said shareholders may pursue claims that the bank, Dimon and
Braunstein committed fraud by materially understating the bank's "value
at risk," and misleading them on an April 13, 2012 earnings call when Dimon labeled as a
"tempest in a teapot" reports about a synthetic credit portfolio
that Iksil managed.
"The statements were material as they were made immediately after
the financial news media revealed that (the) CIO had amassed a huge
position in exotic derivative instruments, and defendants were attempting
to reassure investors that those trades were under control," Daniels
wrote.
"Plaintiffs have adequately alleged that defendants Dimon and
Braunstein knew fact or had access to information suggesting that their
public statements were not accurate," he added.
Daniels also dismissed claims against three other JPMorgan officials:
Ina Drew, who led the CIO; Mike Cavanagh, who preceded Braunstein as CFO;
and Barry Zubrow, who had been the bank's chief risk officer.
JPMorgan spokesman Brian Marchiony declined to comment.
TWO OTHER LAWSUITS ARE DISMISSED
The securities lawsuit was led by pension funds in Arkansas, Ohio,
Oregon and Sweden, and seeks class-action status on behalf of the bank's
stockholders from February 24, 2010 to May 21, 2012.
Jay Eisenhofer and Gerald Silk, lawyers for the plaintiffs, did not
immediately respond to requests for comment. Dan Tierney, a spokesman for
Ohio Attorney General Mike DeWine, said his office is reviewing the
decision.
In the directors case, Daniels rejected claims by the Wayne County
Employees' Retirement System in Detroit that JPMorgan's board improperly
condoned the CIO's risk-taking, citing a lack of evidence that it
"consciously disregarded red flags."
He also dismissed claims brought on behalf of employees that including
the bank's stock as an investment option in retirement plans was imprudent,
finding "no allegations of when, or even that, JPMorgan was in dire
circumstances."
David Rosenfeld, a lawyer for the Wayne County pension plan, did not
immediately respond to a request for comment.
Jacob Zamansky, a lawyer for the employees, said: "We respectfully
disagree with Judge Daniels' opinion, and are considering our options on
appeal."
The U.S. Supreme Court will on Wednesday hear arguments in a similar
case involvingFifth Third Bancorp.
Last year, JPMorgan agreed to pay more than $1 billion to settle U.S.
and British regulatory probes into the London Whale losses, and admitted
wrongdoing.
Two traders at the bank, Javier Martin-Artajo and Julien Grout, were
indicted in September for allegedly hiding losses linked to Iksil. Both
have been fighting those charges.
The cases in the U.S. District Court, Southern District of New York are
In re: JPMorgan Chase & Co Securities Litigation, No.
12-03852; In re: JPMorgan Chase & Co Derivative Litigation, No.
12-03878; and In re: JPMorgan Chase & Co ERISA Litigation, No.
12-04027.
(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)
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