In an opinion Friday, Judge Daniels dismissed an ERISA case brought by JP Morgan employees who invested in a company retirement fund of company stock and who allege that the company concealed multibillion dollar trading losses made by the so-called “London Whale.” Judge Daniels had dismissed the case earlier (see here), but it was revived following the Supreme Court’s decision in 2014 in Fifth Third Bancorp v. Dudenhoeffer, which announced a new legal standard for these types of cases.
Under Dudenhoeffer, the plaintiffs were required to allege that the company had a plausible alternative course of action. The parties in the JP Morgan case agreed that the plaintiffs’ proposed alternative — for JP Morgan to stop allowing employees to invest in the stock fund supposedly tainted by fraud — would have required public disclosure of the alleged fraud and thereby been more harmful than beneficial to employees invested in the company:
The Complaint makes only conclusory allegations that a prudent fiduciary in Defendants’ circumstances would not have concluded that making public disclosures would do more harm than good. Plaintiffs acknowledge that Defendants’ possible concern about a stock price drop was “well-founded.” They assert, however, that the “fact” that “disclosing a fraud always causes a company’s stock price to drop” does not “justif[y] perpetuating a fraud” because “the longer a fraud goes on, the more painful the correction w[ill] be.” These assertions are not particular to the facts of this case and could be made by plaintiffs in any case asserting a breach of ERISA’ s duty of prudence. They amount to no more than factors Defendants might have considered when deciding whether to make public disclosures.
Our prior posts on the case are here.