JPMorgan Chase & Co. will pay $150 million to settle a class action lawsuit accusing the bank of misleading investors about the riskiness of derivatives trading before the $6 billion “London Whale” trading fiasco. The proposed settlement was in a New York federal court on Dec. 18. The investors, led by a group of retirement funds, reached an agreement for an immediate cash payment from the bank in exchange for ending their litigation just months after winning certification when U.S. District Judge George B. Daniels rejected JPMorgan’s contentions that some of the class members who bought their shares after the bank partially disclosed some losses were differently situated.
The proposed settlement was filed in court the same day the U.S. Securities and Exchange Commission (SEC) said the bank and its investment advisory business will pay $307 million to settle allegations by the SEC and other regulators that the bank failed to tell clients it was steering them to its own products to obtain higher fees. The suit claims JPMorgan violated the Securities Exchange Act by misleading investors about the riskiness of the bank’s derivatives trading, which led JPMorgan’s stock to drop when the losses were disclosed.
The Plaintiffs sought certification of a class of investors who bought JPMorgan stock from Feb. 13 through May 21, 2012, or in the alternative a shorter class period from April 13 through May 21. JPMorgan argued that neither period clears the necessary hurdles.
The bank, among other things, had argued in its bid to defeat certification that some of the lead Plaintiffs bought shares after May 10, 2012, when JPMorgan disclosed a $2 billion trading loss in an analyst call, but before May 21, 2012, when it suspended a planned share buyback program. The bank claims that put them in a different position than investors who had been in the stock long before, meaning the claims don’t pass the “typicality test.” But Judge Daniels found in September that there was no reason to believe some of the Plaintiffs would have to use a unique defense on the May 10 disclosure, because they say the disclosure was only complete on May 21. In that ruling, Judge Daniels approved the shorter period put forth by the class.
The settlement follows a victory for JPMorgan in the Second Circuit earlier this month, when a three-judge panel upheld for the second time Judge Daniels’ finding that shareholder Ernesto Espinoza couldn’t show that JPMorgan’s board had been negligent in rejecting his demand to investigate the wrongdoing connected with the London Whale trading disaster. Referring to guidance from the Delaware Supreme Court, the appellate court said that it was up to the board’s discretion to investigate all of the issues the Plaintiff (Espinoza) raised and that the board didn’t have to respond to all of the demands in the letter it sent refusing his requests.
The Plaintiffs are represented by Jay W. Eisenhofer, Daniel L. Berger and Jeffrey A. Almeida of Grant & Eisenhofer PA, Salvatore J. Graziano, John Rizio-Hamilton and Jonathan D. Uslaner of Bernstein Litowitz Berger & Grossmann LLP, and Andrew L. Zivitz, Matthew L. Mustokoff and Johnston de F. Whitman Jr. of Kessler Topaz Meltzer & Check LLP. The Defendants are represented by Richard C. Pepperman II, Daryl A. Libow and Christopher M. Viapiano of Sullivan & Cromwell LLP. The civil case is In re: JPMorgan Chase & Co. Securities Litigation, in the U.S. District Court for the Southern District of New York.
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