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
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.
[to top of second column]
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 involving Fifth 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
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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