JPMorgan Chase and Co. ("JPMorgan" or the "Company") is still feeling the ramifications of the improper derivative trades undertaken by [former employee] Bruno Iksil, the so-called "London Whale," and several others. The trades caused the company to lose over $6 billion and incur more than $1 billion in fines. In Scrydoff v. JPMorgan Chase and Co. (2014 U.S. Dist. LEXIS 46366), the financial services company is facing a class action lawsuit brought by a class of its own employees that invested money into retirement accounts containing JPMorgan common stock funds. The plaintiffs allege that JPMorgan violated its fiduciary duties to employees under the Employee Retirement Income Security Act ("ERISA") during the period of December 20, 2011 to July 12, 2012 (the "Class Period").1
The class argues that, during the Class Period, JPMorgan knew that the Company was in "dire financial condition" because it knew that the "London Whale" trades would have a negative impact on the price of the Company's common stock and yet did not warn investors. Additionally, the plaintiffs have alleged that JPMorgan made false and misleading statements through its SEC filings, which also caused the Company to violate its fiduciary duty to provide accurate information to investors.2
In March 2014, Judge Daniels of the United States District Court for the Southern District of New York dismissed the employees' case by applying the "Moench Presumption," holding that "only circumstances placing the employer in a dire situation that was objectively unforeseeable by the settlor could require fiduciaries to override the plan terms and divest an EIAP or ESOP of employer stock."3 Judge Daniels ruled that JPMorgan's stock was not in a "dire situation" because the common stock only dropped 24% and its market capitalization at the time was much larger than any potential losses.4
However, in the case captioned Fifth Third Bancorp v. Dudenhoeffer (134 S.Ct. 2459 (2014)), the Supreme Court changed the pleading standard in ERISA "stock-drop cases." The Court ruled that when "employer's stock is challenged in court, the fiduciary is not entitled to the 'presumption of prudence'" that the Moench Presumption provides.5 Employer fiduciaries are subject to the same duty of prudence that applies to all ERISA fiduciaries. The employees are now filing their fourth amended complaint given the Supreme Court's ruling, but JPMorgan is still hoping that its motion to dismiss will be upheld.6
The "London Whale" derivative trading fiasco has caused numerous lawsuits against JPMorgan. In addition to the current lawsuit and other investor lawsuits, JPMorgan has already settled with the Securities and Exchange Commission, Federal Reserve, and the Office of the Comptroller of Currency. Additionally, it settled a case with the U.S. Commodity Futures Trading Commission. These settlements alone have cost JPMorgan over $1 billion.7
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