Two securities lawsuits have been filed on behalf of shareholders and investors of JPMorgan Chase & Co. (JPM) over the financial firm’s $2 billion trading loss from synthetic credit products. According to CEO Jamie Dimon, the massive loss is a result of “egregious” failures made by the financial firm’s chief investment office and a hedging strategy that failed. Both complaints were filed on Tuesday in federal court.
One securities case was brought by Saratoga Advantage Trust — Financial Services Portfolio. The Arizona trust is seeking to represent everyone who suffered losses on the stock that it contends were a result of alleged misstatements the investment bank had made. Affected investors would have bought the stock on April 13 (or later), which is the day that Dimon had minimized any concerns about the financial firm’s trading risk during a conference call.
Per Saratoga Advantage Trust v JPMorgan Chase & Co., the week after the call, losses from the trades went up to about $200 million a day. The Arizona Trust is accusing Dimon and CFO Douglas Braunstein of issuing statements during that conversation that were misleading and “materially false,” as well as misrepresenting not just the losses but also the risks from major bets placed on “derivative contracts involving credit indexes reflecting corporate bonds interest rates.” As a result, when the derivate bets faltered “horribly,” the company suffered “billions of dollars in lost capital,” as well as additional losses in the billions for JPMorgan shareholders in terms of market capitalization. The securities fraud lawsuit is seeking unspecified damages for investors.
The second complaint, submitted by plaintiff James Baker, is a shareholder derivative lawsuit. He is an individual investor seeking damages on behalf of JPMorgan Chase from Dimon, Braunstein and members of the bank’s board. In JPMorgan Chase & Co. v James Dimon, Baker accuses the CEO of publicly disputing that any investment safety regulation was warranted on the grounds that JPMorgan of its own accord was “purportedly so careful” with its investments. Baker says the financial firm failed to disclose that the losses were because of a “marked shift” in its “allowable risk model” and the “clandestine conversion” of a company unit, which was supposed to provide a “conservative risk-reduction function,” into one that touted high risk, short-term trading that ended up exposing JPMorgan to huge losses.
Baker who is charging bank officers and directors with waste of corporate assets, breach of fiduciary duty, and unjust enrichment, is seeking unspecified damages from the bank officers and directors. He also wants a court order mandating that JPMorgan install two shareholder representatives on its board, let shareholders vote on proposals regarding enhancing board supervision, and test internal audit and control policies to make sure that they immediately notify management about trading risks that are not acceptable.
JPMorgan Shareholders Sue Dimon Over $2 Billion Loss, Bloomberg, May 16, 2012
Saratoga Advantage Trust v JPMorgan Chase & Co., Justia.com
JPMorgan Chase & Co. v James Dimon
Dimon: Investment Portfolio is ‘Very Conservative’, Bloomberg, April 13, 2012
More Blog Posts:
JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012
Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011
JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds, Stockbroker Fraud Blog, March 26, 2012