JP Morgan Chase 2010 Annual Report Download - page 288

Notes to consolidated financial statements
288 JPMorgan Chase & Co./2010 Annual Report
with Polaroid; and (iii) a credit line and investment accounts held by
Petters. The actions collectively seek recovery of approximately $450
million.
Securities Lending Litigation. JPMorgan Chase Bank, N.A. has been
named as a defendant in four putative class actions asserting ERISA
and other claims pending in the United States District Court for the
Southern District of New York brought by participants in the Firm’s
securities lending business. A fifth lawsuit was filed in New York
state court by an individual participant in the program. Three of the
purported class actions, which have been consolidated, relate to
investments of approximately $500 million in medium-term notes
of Sigma Finance Inc. (“Sigma”). In August 2010, the Court certi-
fied a plaintiff class consisting of all securities lending participants
that held Sigma medium-term notes on September 30, 2008,
including those that held the notes by virtue of participation in the
investment of cash collateral through a collective fund, as well as
those that held the notes by virtue of the investment of cash collat-
eral through individual accounts. All discovery has been completed.
The Court has set a schedule for filing summary judgment briefs,
pursuant to which the Firm’s motion is to be fully briefed by April
2011.
The fourth putative class action concerns investments of approxi-
mately $500 million in Lehman Brothers medium-term notes. The
Firm has moved to dismiss the amended complaint and is awaiting
a decision. The Magistrate Judge ordered discovery to proceed
while the motion is pending, but this ruling is on appeal to the
District Judge and also is awaiting a decision. The New York state
court action, which is not a class action, concerns the plaintiff’s
alleged loss of money in both Sigma and Lehman Brothers medium-
term notes. The Firm has answered the complaint. The Court de-
nied the Firm’s motion to stay this action pending resolution of the
proceedings in federal court, and discovery has commenced.
Service Members Civil Relief Act and Housing and Economic Recov-
ery Act Investigations and Litigation.
Multiple government officials
have announced their intent to commence, or have commenced,
inquiries into the Firm’s procedures related to the Service Members
Civil Relief Act (“SCRA”) and the Housing and Economic Recovery
Act of 2008 (“HERA”). These inquiries have been prompted by the
Firm’s public statements about its SCRA and HERA compliance and
actions to remedy certain instances in which the Firm mistakenly
charged active or recently-active military personnel mortgage
interest and fees in excess of that permitted by SCRA and HERA,
and in a number of instances, foreclosed on borrowers protected by
SCRA and HERA. The Firm has implemented a number of proce-
dural enhancements and controls to strengthen its SCRA and HERA
compliance and is still reviewing the circumstances under which
these issues arose. In addition, an individual borrower has filed a
purported nationwide class action in United States District Court for
South Carolina against the Firm alleging violations of the SCRA.
Washington Mutual Litigations.
Subsequent to JPMorgan Chase’s
acquisition from the Federal Deposit Insurance Corporation
(“FDIC”) of substantially all of the assets and certain specified
liabilities of Washington Mutual Bank, Henderson Nevada (“Wash-
ington Mutual Bank”), in September 2008, Washington Mutual
Bank’s parent holding company, Washington Mutual, Inc. (“WMI”)
and its wholly-owned subsidiary, WMI Investment Corp. (together,
the “Debtors”), both commenced voluntary cases under Chapter 11
of Title 11 of the United States Code in the United States Bank-
ruptcy Court for the District of Delaware (the “Bankruptcy Case”).
In the Bankruptcy Case, the Debtors have asserted rights and
interests in certain assets. The assets in dispute include principally
the following: (a) approximately $4 billion in trust securities con-
tributed by WMI to Washington Mutual Bank (the “Trust Securi-
ties”); (b) the right to tax refunds arising from overpayments
attributable to operations of Washington Mutual Bank and its
subsidiaries; (c) ownership of and other rights in approximately $4
billion that WMI contends are deposit accounts at Washington
Mutual Bank and one of its subsidiaries; and (d) ownership of and
rights in various other contracts and other assets (collectively, the
“Disputed Assets”).
WMI, JPMorgan Chase and the FDIC have since been involved in
litigations over these and other claims pending in the Bankruptcy
Court and the United States District Court for the District of Columbia.
In May 2010, WMI, JPMorgan Chase and the FDIC announced a
global settlement agreement among themselves and significant
creditor groups (the “Global Settlement Agreement”). The Global
Settlement Agreement is incorporated into WMI’s proposed Chapter
11 plan (“the Plan”) that has been submitted to the Bankruptcy
Court. If approved by the Bankruptcy Court, the Global Settlement
would resolve numerous disputes among WMI, JPMorgan Chase, the
FDIC in its capacity as receiver for Washington Mutual Bank and the
FDIC in its corporate capacity, as well as those of significant creditor
groups, including disputes relating to the Disputed Assets.
Other proceedings related to Washington Mutual’s failure are also
pending before the Bankruptcy Court. Among other actions, in July
2010, certain holders of the Trust Securities commenced an adver-
sary proceeding in the Bankruptcy Court against JPMorgan Chase,
WMI, and other entities seeking, among other relief, a declaratory
judgment that WMI and JPMorgan Chase do not have any right,
title or interest in the Trust Securities. In early January 2011, the
Bankruptcy Court granted summary judgment to JPMorgan Chase
and denied summary judgment to the plaintiffs in the Trust Securi-
ties adversary proceeding.
The Bankruptcy Court considered confirmation of the Plan, including
the Global Settlement Agreement, in hearings in early December
2010. In early January 2011, the Bankruptcy Court issued an opinion
in which it concluded that the Global Settlement Agreement is fair
and reasonable, but that the Plan cannot be confirmed until the
parties correct certain deficiencies, which include the scope of re-
leases. None of these deficiencies relate to the Disputed Assets. The
Equity Committee has filed a petition seeking a direct appeal to the
United States Court of Appeals for the Third Circuit from so much of
the Bankruptcy Court’s ruling that found the settlement to be fair and
reasonable. A revised Plan was filed with the Bankruptcy Court in
February 2011, and the Bankruptcy Court has scheduled a hearing for
May 2, 2011. If the Global Settlement is effected and the Plan is