In an opinion today, Judge Daniels denied JP Morgan’s motion to dismiss a shareholder class action arising from its multibillion dollar losses from trades made by the “London Whale.” In an April 2012 conference call, CEO Jaime Dimon described the matter as a “tempest in a teapot,” and CFO Douglas Braunstein said he was “comfortable” with the bank’s position. The bank argued that the complaint failed to adequately allege that those statements were inconsistent with what the executives were told at the time:
[T]he oft-quoted statements by Braunstein and Dimon, respectively, during the April 13 earnings call—that JPMorgan was “comfortable” with the positions and that the press reports were a “tempest in a teapot”—were entirely consistent with what Dimon and Braunstein had been told about the London traders’ positions. The very documents on which the Complaint relies show that before the earnings call, Dimon and Braunstein were repeatedly assured by CIO personnel in London and others that the London portfolio was “balanced” and “manageable,” that the losses then incurred would “mean revert” and that potential future losses were a fraction of what they turned out to be.
Judge Daniels disagreed:
Plaintiffs allege that given the information that bank executives possessed in advance of the bank’s public communications in April, the representations made by Defendants JPMorgan, Dimon and Braunstein were incomplete, contained numerous inaccuracies, and misinformed investors, regulators, and the public about the SCP [synthetic credit portfolio]. The facts alleged by Plaintiffs indicate that, from the beginning of JPMorgan’s public discussion of the SCP in April 2012, those defendants planned to describe the portfolio as a risk-reducing hedge that was transparent to the bank’s regulators, even though neither characterization was accurate. Plaintiffs have made numerous factual allegations to support the compelling inference that these Defendants “knew facts or had access to information suggesting that their public statements were not accurate.” In the first instance, Plaintiffs allege that these Defendants were in possession of information before the April 13 call that indicated that losses were substantial and growing. Specifically, Dimon and others allegedly knew that the losses associated with the London Whale trades had already reached $1.2 billion, over $400 million of which occurred on a single trading day, and Dimon and others had been told that the losses could reach as high as $9 billion. In addition, compared to the prior quarter, the SCP had tripled in size from about $51 billion to $157 billion and contained many new credit derivatives. Furthermore, Defendants Dimon and Braunstein were allegedly told that the portfolio’s largest position would take 10-15 days of selling at 100% trading volume to exit. Thus, these two executives knew that exiting some of the portfolio’s positions could take weeks or months . . . In short, Plaintiffs have adequately alleged that Defendants Dimon and Braunstein knew facts or had access to information suggesting that their public statements were not accurate.
In two separate decisions today, Judge Daniels dismissed a derivative suit (see here) and an ERISA suit (here) also arising from the London Whale trades.