This website provides information and updates regarding two class actions pending against JPMorgan Chase Bank, N.A. before Judge Shira A. Scheindlin in the United States District Court for the Southern District of New York:  Board of Trustees of the AFTRA Retirement Fund v. JPMorgan Chase Bank, N.A. Litigation (“AFTRA Action”) and Board of Trustees of the Imperial County Employees’ Retirement System v. JPMorgan Chase Bank, N.A. (“Imperial County Action”).

Update:

On August 5, 2011, the Court issued an Opinion and Order granting JPMorgan’s motion for partial summary judgment on the duty of loyalty (conflict of interest) claim and denying plaintiffs’ cross-motion for partial summary judgment on the same claim. In summary, the Court held that JPMorgan was entitled to judgment as a matter of law because (1) it was not acting in a fiduciary capacity when it extended repo financing to Sigma; (2) the Class’ losses did not arise from JPMorgan’s purportedly “conflicted” status but from the decisions of JPMorgan and other repo financiers to declare default (which the Court found would have happened anyway); and (3) JPMorgan had no duty to disclose its status or conduct as repo financier to the Class. Although entering judgment on the duty of loyalty claim, the Court suggested that the Class has strong evidentiary support for its duty of prudence claim, which was not the subject of the motion. See Opinion at 68-70. The Court set a trial date of February 6, 2012 for the duty of prudence and state law contract claims.

READ THE OPINION AND ORDER

On March 3, 2011, JPMorgan filed a motion for partial summary judgment limited to plaintiffs' duty of loyalty (or conflict of interest) claim. Specifically, JPMorgan argued that plaintiffs cannot succeed on their duty of loyalty claim because: (1) JPMorgan purportedly was not acting in a fiduciary capacity when it extended repo financing to Sigma Finance; (2) JPMorgan purportedly had a "Chinese wall" in place between its private side businesses that extended repo financing to Sigma Finance and its public side securities lending business that invested the funds of the Class; (3) plaintiffs' duty of loyalty claim would purportedly impose drastic and unprecedented restrictions on the financial services industry; and (4) plaintiffs allegedly cannot establish that JPMorgan's conflict of interest caused the damages the Class suffered.

Also on March 3, 2011, The Securities Industry and Financial Markets Association (“SIFMA”) filed an amicus curiae brief in support of JPMorgan's motion for partial summary judgment, arguing that plaintiffs' position would purportedly impose untenable conflicts on the routine functioning of banks and would have adverse consequences on liquidity and credit markets. On March 28, 2011, plaintiffs filed a response to the SIFMA brief, arguing that (1) SIFMA grossly mischaracterizes plaintiffs' conflict of interest claim, (2) neither OCC regulations nor ERISA permits JPMorgan's unlawful conduct in this case, (3) the court's denial of JPMorgan's motion will have no appreciable impact on the banking and securities industry, and (4) SIFMA's interest and institutional bias is readily apparent.

Further, on March 31, 2011, plaintiffs filed their opposition to JPMorgan's motion for partial summary judgment. Plaintiffs also simultaneously cross-moved for summary judgment in their favor on the duty of loyalty (or conflict of interest) claim. Specifically, plaintiffs argued that JPMorgan breached its fiduciary duties as a matter of law by failing to disclose to the Class its conflicted status as repo financier of Sigma Finance. Plaintiffs argued that JPMorgan's "Chinese wall" policy was wholly irrelevant to the case because JPMorgan's status as repo financier of Sigma Finance did not qualify for protection as "material non-public information" and its conclusion that Sigma Finance would likely fail was solely on publicly available information. In addition, the evidence establishes that JPMorgan employees on both side of the "wall" (as well as high-ranking JPMorgan who "straddled" the wall, including CEO Jamie Dimon) were aware of the activities occurring on the other side sufficient to know of the resultant conflict of interest. Plaintiffs further argued that JPMorgan breached its fiduciary duty of loyalty to the Class by placing its own financial interests above those of its fiduciary clients. Indeed, the evidence establishes that JPMorgan made nearly $2 billion of profit for itself through providing repo financing to Sigma Finance and subsequently seizing Sigma's best assets after declaring a default of the repo agreements. Finally, plaintiffs argued that they can easily establish that unlawful actions of JPMorgan directly and proximately caused the Class to suffer losses exceeding $500 million

This issue of plaintiffs' duty of loyalty claim is now fully briefed and the parties are awaiting the Court's ruling on the matter. Copies of relevant motion materials appear below.

Notice of Pendency of Class Action
JP Morgan's Summary Judgment Brief with Exhibits
Plaintiffs' Summary Judgment Brief with Exhibits
JP Morgan's Reply Brief with Exhibits
SIFMA's Amicus Curiae Brief
Plaintiffs' Response to SIFMA's Amicus Curiae Brief

Information Pertaining to AFTRA Action:

On January 23, 2009, Plaintiff filed a Class Action Complaint (“Complaint”) on behalf of the Class (as that term is defined below), which consists of all plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), who were participants in Defendant’s securities lending program and, through one or more of the collective investments vehicles managed by Defendant or its affiliates, incurred losses relating to investments in medium-term notes of Sigma Finance, Inc.  Through this action, Plaintiff seeks to recover such losses on behalf of the AFTRA Plan and on behalf of all members of the Class (“Class Members” or the “ERISA Plans”).  Through an Amended Class Action Complaint filed on April 23, 2009, Plaintiff expanded the Class to include ERISA plans that participated in Defendant’s securities lending program and that directly invested in medium-term notes of Sigma Finance, Inc. rather than through a collective investment vehicle.

Each member of the proposed class, including the AFTRA Plan, was a party to a substantially similar securities lending agreement with JPMorgan (each a “Securities Lending Agreement”).  Pursuant to these Securities Lending Agreements, Defendant loaned securities owned by Class Members to third-party borrowers in return for cash collateral; defendant then invested, at its sole discretion, the cash collateral in an effort to earn an investment return on the cash collateral in excess of the rebate paid to the third-party borrowers. 

In return for the loaned securities, the AFTRA Plan and Class Members received cash from the borrowers in an amount exceeding the market value of the loaned securities.  As compensation,
Defendant received a percentage of the revenues generated for each Class Member. 

According to the Securities Lending section of JPMorgan’s website, the stated purpose for its Securities Lending Program is to “obtain an attractive return while minimizing risk.”  Given that the funds Defendant invested for Class Members consisted of collateral that was required to be returned to borrowers upon repayment of the underlying securities loans, Defendant was contractually required to invest the cash collateral conservatively and prudently,.  Each of the Securities Lending Agreements required Defendant, among other things, to (a) safeguard principal, (b) maintain adequate liquidity, and (c) discharge its duties with respect to the investment of the collateral with care, skill, prudence, and diligence.

Despite these objectives and duties, Defendant invested and lost a substantial portion of the cash collateral provided to Class Members in medium-term notes (“MTNs”) issued by Sigma Finance, Inc. (“SFI”).  SFI is a Delaware corporation organized for the sole purpose of issuing debt securities for its Cayman Islands parent company, Sigma Finance Corporation (“Sigma”).  The debt securities – in this case MTNs – were secured only by a “floating lien” on the assets of Sigma, which was subject to subordination to the lien interests of Sigma’s other creditors.

Shortly after Defendant purchased a substantial amount of Sigma MTNs using the cash collateral held by Class Members, analysts following Sigma and other structured investment vehicles (“SIVs”) like Sigma warned that the lack of liquidity in the credit market and sharp declines in the market value of assets backing many SIVs threatened their viability.

By no later than December 2007, analysts predicted that Sigma would not be able to repay the MTNs Defendant purchased with Class Members’ collateral upon maturity.  However, Defendant wholly ignored these reports and continued to hold these rapidly declining investments.

In late September 2008, the analyst predictions proved true.  Sigma’s creditors seized over $25 billion of its approximately $27 billion of assets, leaving approximately $1.9 billion as security for approximately $6.2 billion of outstanding MTNs and other secured debt.  By October 6, 2008, Sigma was in receivership.  Sigma’s receivership was particularly problematic because, although many of the other SIVs that had failed were subsidiaries of major banks—including Citigroup and HSBC—that had absorbed their losses, Sigma was a standalone entity that lacked any investment or commercial bank backing.

Also troubling is that JPMorgan’s involvement with Sigma MTNs was not limited to its investments on behalf of the AFTRA Plan:  While JPMorgan was investing the AFTRA Plan’s money in Sigma MTNs, JPMorgan was also earning substantial fees and interest through providing short term repurchase ("repo") financing directly to Sigma.  JPMorgan’s financial interest as Sigma’s repo financier was in direct conflict with its fiduciary responsibility to the AFTRA Plan and, as a result of its direct relationship, JPMorgan was clearly in a position to know of Sigma’s problems. 

In addition, money market funds managed by JPMorgan also held Sigma MTNs.  Rather than protect the assets of the AFTRA Plan and the Class, JPMorgan supported Sigma with repo financing, then pulled the plug after its own money market mutual funds received their final payments on their Sigma MTN holdings.

Specifically, in October 2008, JPMorgan issued a notice of default for the credit it provided to Sigma and moved to seize the collateral provided in exchange for its repo funding.  JPMorgan’s move was followed by Sigma’s other lenders.  The banks’ seizure of Sigma’s assets forced Sigma’s collapse.  Thus, at the same time that JPMorgan sought to safeguard its own financial interest by seizing Sigma’s collateral – precipitating Sigma’s collapse – JPMorgan continued to invest the AFTRA Plan’s assets in Sigma.

Plaintiff brings this action at this time on behalf of the AFTRA Plan and on behalf of similarly situated ERISA plans throughout the country that were subject to, and affected by, JPMorgan’s conduct in the same manner.  Plaintiff alleges that JPMorgan, having undertaken a fiduciary role with respect to the AFTRA Plan and members of the Class, breached its duties of prudence, loyalty, and exclusive purpose under ERISA § 404(a).

Plaintiff seeks losses to these plans for which JPMorgan is liable pursuant to ERISA §§ 409 and 502(a)(2), 29 U.S.C. §§ 1109 and 1132(a)(2). In addition, Plaintiff seeks other equitable relief from JPMorgan, including, without limitation, injunctive relief and, as available under applicable law, constructive trust, restitution, equitable tracing, and other monetary relief.

READ THE COMPLAINT

Information Relating to Imperial County Action:

On March 27, 2009, a complaint was filed on behalf of the Board of Trustees of the Imperial County Employees’ Retirement System.  The allegations in the Imperial County complaint mirror those of the AFTRA action with the exception that this action covers government and other non-ERISA plans. 

READ THE COMPLAINT

Case Activity:

• The AFTRA action was filed on January 23, 2009.
• On March 23, 2009, the parties had a Rule 16 conference before the Court, at which time a pre-trial schedule was established and ordered by the Court.
• On May 7, 2009, an action on behalf of MaBSTOA – a New York Transit Authority – was filed against JPMorgan with allegations that were virtually identical to the Imperial County action.
• All actions were consolidated and Kessler Topaz was appointed Interim Lead Counsel by the Orders of the Court dated May 28, 2009.
• Fact discovery has closed. The parties are now engaged in expert disclosures and discovery.
• On August 4, 2010, the Court granted Plaintiffs’ Motion for Class Certification, appointed AFTRA, Imperial County and MaBSTOA as class representatives and appointed Kessler Topaz as class counsel.
• On August 5, 2011, the Court granted Defendants’ Motion for Partial Summary Judgment on the duty of loyalty (conflict of interest) claim .
• Trial is scheduled for February 6, 2012.

COUNSEL FOR PLAINTIFFS AND THE CLASS:

KESSLER TOPAZ MELTZER & CHECK, LLP
Joseph H. Meltzer
Darren J. Check
Peter H. LeVan, Jr.
280 King of Prussia Road
Radnor, PA  19087
Telephone:  (610) 667-7706
Facsimile:  (610) 667-7056

OF COUNSEL:

NIX PATTERSON & ROACH, LLP
Bradley A. Beckworth
Brad E. Seidel
205 Linda Drive
Daingerfield, TX  75638
Telephone:  (903) 645-7333
Facsimile:  (903) 645-4415

DEALY & SILBERSTEIN, LLP                          
Milo Silberstein
225 Broadway
Suite 1405
Telephone:  (212) 385-0066
Facsimile:  (212) 385-2117

BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP
David Wales
1285 Avenue of the Americas
New York, NY 10019
Telephone:  (212) 554-1400
Facsimile:  (212) 554-1444

WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP
Gregory M. Nespole
270 Madison Avenue
New York, NY 10016
Telephone:  (212) 545-4600
Facsimile:  (212) 545-4653