JP Morgan Chase 2010 Annual Report Download - page 283

JPMorgan Chase & Co./2010 Annual Report 283
funds, alleging that the Bear Stearns defendants mismanaged the
Funds and made material misrepresentations to and/or withheld
information from investors in the feeder funds. These actions seek,
among other things, unspecified compensatory damages based on
alleged investor losses. The third action, brought by the Joint Vol-
untary Liquidators of the Cayman Islands feeder funds, makes
allegations similar to those asserted in the derivative lawsuits
related to the U.S. feeder funds, and seeks compensatory and
punitive damages. Motions to dismiss in these three cases have
been granted in part and denied in part. An agreement in principle
has been reached, pursuant to which BSAM would pay a maximum
of approximately $19 million to settle the one derivative action
relating to the feeder fund to the High Grade Fund. BSAM has
reserved the right not to proceed with this settlement if plaintiff is
unable to secure the participation of investors whose net contribu-
tions meet a prescribed percentage of the aggregate net contribu-
tions to the High Grade Fund. The agreement in principle remains
subject to documentation and approval by the Court. Discovery in
the other two actions is ongoing.
The fourth action was brought by Bank of America and Banc of
America Securities LLC (together “BofA”) alleging breach of contract
and fraud in connection with a May 2007 $4 billion securitization,
known as a “CDO-squared,” for which BSAM served as collateral
manager. This securitization was composed of certain collateralized
debt obligation (“CDO”) holdings that were purchased by BofA from
the Funds. Bank of America seeks in excess of $3 billion in damages.
Defendants’ motion to dismiss in this action was largely denied, an
amended complaint was filed and discovery is ongoing.
Bear Stearns Shareholder Litigation and Related Matters. Various
shareholders of Bear Stearns have commenced purported class
actions against Bear Stearns and certain of its former officers
and/or directors on behalf of all persons who purchased or other-
wise acquired common stock of Bear Stearns between December
14, 2006 and March 14, 2008 (the “Class Period”). During the
Class Period Bear Stearns had between 115 and 120 million com-
mon shares outstanding, and the price of those securities declined
from a high of $172.61 to a low of $30 at the end of the period.
The actions, originally commenced in several federal courts, allege
that the defendants issued materially false and misleading state-
ments regarding Bear Stearns’ business and financial results and
that, as a result of those false statements, Bear Stearns’ common
stock traded at artificially inflated prices during the Class Period.
Separately, several individual shareholders of Bear Stearns have
commenced or threatened to commence arbitration proceedings
and lawsuits asserting claims similar to those in the putative class
actions. In addition, Bear Stearns and certain of its former officers
and/or directors have also been named as defendants in a number
of purported class actions commenced in the United States District
Court for the Southern District of New York seeking to represent
the interests of participants in the Bear Stearns Employee Stock
Ownership Plan (“ESOP”) during the time period of December
2006 to March 2008. These actions, brought under the Employee
Retirement Income Security Act (“ERISA”), allege that defendants
breached their fiduciary duties to plaintiffs and to the other partici-
pants and beneficiaries of the ESOP by (a) failing to manage pru-
dently the ESOP’s investment in Bear Stearns securities; (b) failing
to communicate fully and accurately about the risks of the ESOP’s
investment in Bear Stearns stock; (c) failing to avoid or address
alleged conflicts of interest; and (d) failing to monitor those who
managed and administered the ESOP.
Bear Stearns, former members of Bear Stearns’ Board of Directors
and certain of Bear Stearns’ former executive officers have also
been named as defendants in two purported shareholder derivative
suits, subsequently consolidated into one action, pending in the
United States District Court for the Southern District of New York.
Plaintiffs are asserting claims for breach of fiduciary duty, violations
of federal securities laws, waste of corporate assets and gross
mismanagement, unjust enrichment, abuse of control and indemni-
fication and contribution in connection with the losses sustained by
Bear Stearns as a result of its purchases of subprime loans and
certain repurchases of its own common stock. Certain individual
defendants are also alleged to have sold their holdings of Bear
Stearns common stock while in possession of material nonpublic
information. Plaintiffs seek compensatory damages in an unspeci-
fied amount. Plaintiffs later filed a second amended complaint
asserting, for the first time, purported class action claims, as well as
new allegations concerning events that took place in March 2008.
All of the above-described actions filed in federal courts were
ordered transferred and joined for pre-trial purposes before the
United States District Court for the Southern District of New York.
Defendants moved to dismiss the purported securities class action,
the shareholders’ derivative action and the ERISA action. In January
2011, the District Court granted the motions to dismiss the deriva-
tive and ERISA actions, and denied the motion as to the securities
action. Plaintiffs in the derivative action have filed a motion for
reconsideration of the dismissal. Discovery will now commence in
the securities action.
City of Milan Litigation and Criminal Investigation. In January 2009,
the City of Milan, Italy (the “City”) issued civil proceedings against
(among others) JPMorgan Chase Bank, N.A. and J.P. Morgan
Securities Ltd. (together, “JPMorgan Chase”) in the District Court
of Milan. The proceedings relate to (a) a bond issue by the City in
June 2005 (the “Bond”) and (b) an associated swap transaction,
which was subsequently restructured on a number of occasions
between 2005 and 2007 (the “Swap”). The City seeks damages
and/or other remedies against JPMorgan Chase (among others) on
the grounds of alleged “fraudulent and deceitful acts” and alleged
breach of advisory obligations by JPMorgan Chase (among others)
in connection with the Swap and the Bond, together with related
swap transactions with other counterparties. The civil proceedings
continue and there will be an initial hearing on March 9, 2011.
JPMorgan Chase Bank, N.A. will seek an adjournment on the
grounds that it has filed a challenge to the Italian Supreme Court’s
jurisdiction over JPMorgan Chase Bank, N.A., which has yet to be
decided. The judge directed four current and former JPMorgan
Chase personnel and JPMorgan Chase Bank, N.A. (as well as other
individuals and three other banks) to go forward to a full trial that