JPMorgan Chase & Co.’s (JPM - Analyst Report) huge mark-to-market loss of about $2 billion in the first six weeks of the second quarter has intertwined it in numerous troubles. According to Reuters, earlier this week, the company has yet again faced a lawsuit.
Gregory Scrydloff, a former employee of the company, filed the lawsuit in the New York State Supreme Court in Manhattan. The filed lawsuit requests for class-action status for the existing and ex-employees of JPMorgan, who participated in retirement plans from April 13 to the present. Under class-actions, small investors join together to file court cases against the company they have invested in, to recuperate the losses incurred.
The lawsuit also sued the CEO, Jamie Dimon and the head of JPMorgan's chief investment office, Ina Drew, who resigned after the losses were incurred. The compliant lodged alleges misrepresentations of facts, related to the financial stability of the company, to the employees. This led to a fall in the value of their retirement accounts.
Moreover, the plaintiffs accuse JPMorgan of violating the federal Employee Retirement Income Security Act, which provides retirement plan participants, the right to sue the company for infringing fiduciary duties.
The employees claim that JPMorgan failed to perform its fiduciary duties related to retirement plan. Therefore, the retirement plans suffered millions of losses.
Recently, the company’s shareholders also sued the CEO and the top management of JPMorgan for alleged misrepresentations of the facts. They filed the complaint in two separate lawsuits in the U.S. District Court in Manhattan. The litigations claim that the top management misled the investors regarding the potential risks involved in complex bets that were placed.
One of these above-mentioned lawsuits is filed by Arizona-based Saratoga Advantage Trust financial services portfolio, while the other is filed by an individual investor, James Baker. The former filed a securities-fraud lawsuit on behalf of all those investors who lost their money on the shares (between April 13 and May 10) due to the misleading statements that the company’s management gave them related to the losses.
The series of lawsuits against JPMorgan follows the company’s announcement of losses in an index of credit default swap (a type of derivative), which was supposed to protect the company against the potential losses on its large holdings of loans and bonds. However, the company’s strategy backfired as the repositioning of the credit portfolio was poorly monitored and executed.
The proclamation of significant trading losses at JPMorgan is pressurizing the regulators to apply stringent regulations on financial companies. In addition to this, the company’s losses have been under intense scrutiny by the Department of Justice and the Federal Reserve. The FBI has also joined the fray to inquire about the same.
All the major banks in the country such as Bank of America Corporation (BAC - Analyst Report), Wells Fargo & Company (WFC - Analyst Report), The Goldman Sachs Group Inc. (GS - Analyst Report), Citigroup Inc. (C - Analyst Report) and Morgan Stanley (MS - Analyst Report) follow the trend set by JPMorgan. Over the last several quarters, we have seen that even the announcements of quarterly financial results by almost all the major banks followed the company’s footsteps. However, we hope that other banks are not going to turn up with similar trading loss announcements.
Further, JPMorgan runs the risk of further hedge-related losses over the quarter. Numerous lawsuits alleging JPMorgan of such wrongdoings would surely dent its reputation and financials. However, we believe that the investors, who have lost their hard-earned money in such investments, should feel relieved by the legal charges filed against the company.
Currently, JPMorgan retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ rating on the stock.