London Whale class action proceeding against JP Morgan

Posted on: April 24th, 2014 by Steve Larson
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Law and justice concept, gavelA New York federal judge refused to dismiss JP Morgan Chase & Co. and CEO Jamie Dimon from a shareholder class action over the bank’s $6 billion “London Whale” trading fiasco.  U.S. District Judge George B. Daniels denied a request by JPMorgan, Dimon and former bank finance chief Douglas Braunstein to be dismissed from the suit. The judge said the plaintiffs had adequately alleged that public statements by Dimon and Braunstein about the trades during an April 2012 earnings conference call “were materially false and misleading when made.”

During the call, Dimon described media reports about a buildup of complex derivatives in JPMorgan’s London-based Chief Investment Office, or CIO, as “a tempest in a teapot.” Braunstein also sought to downplay risks involved in the trading, at one point claiming that the positions were “fully transparent” to regulators. The losses would ultimately balloon to more than $6 billion and result in more than $1 billion in fines against JPMorgan and criminal charges against two individuals.

“Had the defendants disclosed all of the material facts that they were allegedly in possession of, it would have significantly altered the information available to investors,” Judge Daniels said.

At the same time, Judge Daniels granted a motion to dismiss from the suit three other former JPMorgan executives: Ina Drew, Barry Zubrow and Michael Cavanagh. Drew oversaw the CIO and resigned amid the scandal.

Bruno Iksil, the trader at the center of the blowup who became known as the London Whale, has cooperated with the government and will not be charged under a rare nonprosecution agreement. But his former colleagues, Javier Martin-Artajo and Julien Grout, were charged with intentionally manipulating the loss figure from Iksil’s synthetic derivatives portfolio, resulting in false internal records and false filings with the U.S. Securities and Exchange Commission.

JPMorgan has been hit hard by the scandal. It reached a $920 million settlement with the SEC, Federal Reserve, Office of the Comptroller of the Currency and the U.K. Financial Conduct Authority. In October, the bank struck a $100 million pact with the U.S. Commodity Futures Trading Commission.

JPMorgan admitted wrongdoing as part of the SEC and CFTC settlements.

Stoll Berne and three other firms represent the lead plaintiffs in the securities class action.