JPMorgan to obtain identities of confidential witnesses in securities class action

Posted on: May 15th, 2013 by Steve Larson
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Stocks and sharesJPMorgan Chase & Co has won a court order requiring plaintiffs’ lawyers pursuing a securities fraud lawsuit against it to disclose the identities of witnesses sourced anonymously in the complaint.  The order on Tuesday by U.S. Magistrate Judge James Francis in Manhattan added to the growing list of cases in which judges have allowed defendants to probe unnamed “confidential witnesses” used to support investor class action claims.  

Filed in 2009, the lawsuit against the bank is one of a series of lawsuits by investors in mortgage-backed securities that went sour during the housing meltdown and 2008 financial crisis.   Tuesday’s order came a week after U.S. District Judge Colleen McMahon ordered the disclosure of the names of nine witnesses cited in a securities fraud lawsuit against Aeropostale Inc. 

In securities class actions, confidential witnesses typically are former employees of the defendant company. To sufficiently allege fraud in lawsuits, plaintiffs’ lawyers often hire private investigators to find former employees and get information about a company’s operations that they can use to bolster complaints.  But defendants have increasingly pushed back and sought the names of these anonymous witnesses. Once identified, some confidential witnesses have later disputed saying what the plaintiffs have attributed to them. 

In the JPMorgan case, U.S. District Judge John Koeltl in March 2011 partially denied the bank’s motion to dismiss the lawsuit, allowing the case to move forward.  Earlier this year, the judge expanded the potential liability JPMorgan faces. He held that the lead plaintiffs – Laborers Pension Trust Fund for Northern California and Construction Laborers Pension Trust for Southern California – have standing to pursue claims on behalf of investors in mortgage-backed certificates they did not own but that stemmed from the same offering. 

The lawsuit is now on track to move toward the next stage when the plaintiffs move for class certification.  Lawyers contended contended the witnesses’ identities were protected as attorney work product. They also contended they already fulfilled any duty to disclose the names by providing a list of 44 individuals who may have relevant information and that included the confidential witnesses. 

Francis, in siding with JPMorgan, said that while some judges in New York have disagreed to some extent about whether confidential informants’ identities are privileged, the majority view has been the names can be disclosed.  “Furthermore, leaving the defendants to contact all 44 individuals to identify the confidential informants would be costly and time-consuming where the lead plaintiffs can easily provide the same information,” he said. 

The judge said that to the extent any of the confidential witnesses have concerns about possible retaliation in a current or future job, lawyers for the plaintiffs could within two weeks address the court to determine whether maintaining anonymity was justified.  

The case is Fort Worth Employees’ Retirement Fund v. JPMorgan Chase & Co, U.S. District Court, Southern District of New York, No. 09-03701.