JPMorgan targeted in two investor lawsuitsReported by Proactive Investors on Wednesday, 16 May 2012 (on May 16, 2012)
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JPMorgan Chase & Co (NYSE:JPM) was targeted in two separate investor lawsuits Wednesday which accused the bank and its management of excessive risk that led to trading losses of at least $2 billion.
Late last week, the Wall Street bank unveiled its $2 billion loss, pinpointed to a trader in London dubbed "The Whale". JPMorgan now expects to lose $800 million within the corporate/private equity segment, down from prior guidance of net income of $200 million.
The bank's chief executive Jamie Dimon cited "errors" and "bad judgment" in trades meant to hedge risk and said the losses could deepen this quarter and beyond.
A JPMorgan Chase spokesman declined to comment on the lawsuits, which were filed in U.S. District Court in Manhattan, days after Dimon’s May 10 statement that a "failed hedging strategy" caused the massive loss over the last month.
One of the lawsuits states: “What the company did not reveal was that those losses were the result of a marked shift in the company’s allowable risk model, undisclosed to investors, and the similarly clandestine conversion of a unit within the company
that was touted as providing a conservative risk-reduction function into a risky, short-term trading enterprise that exposed the company to large losses instead."
It was filed by California shareholder James Baker on behalf of JPMorgan Chase against Dimon, chief financial officer Douglas Braunstein and board members. The lawsuit charged the JPMorgan defendants with breach of fiduciary duty, waste of corporate assets and unjust enrichment.
A separate lawsuit was filed at the same time by shareholder Saratoga Advantage Trust financial services portfolio on behalf of
owners of common stock.
It said Dimon and Braunstein made "materially false and misleading statements and omissions" on an April 13 earnings conference call with investors.
The second lawsuit detailed: "Defendants misrepresented the losses and risk of loss to the company arising from massive bets on derivative contracts related to credit indexes reflecting interest rates on corporate bonds.
"These derivative bets went horribly wrong, resulting in billions of dollars in lost capital for the company and billions more in
lost market capitalization for JPMorgan shareholders."
Separately, the FBI opened a probe into JPMorgan's trading losses, stepping up the pressure on the bank after the U.S. Securities and Exchange Commission and the Federal Reserve said they were also looking into the trading strategy that led to the losses.
Earlier this week, shareholders backed embattled chief executive Dimon at the bank’s annual shareholders meeting in Tampa, Florida, voting against a proposal to split the CEO and chairman roles. Many of the votes were cast before the bank unveiled its trading loss.
Ina Drew, chief of the hedging unit that racked up the losses, announced her sudden retirement on Monday.
Links:  Full news story
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