JP Morgan Chase 2010 Annual Report Download - page 287

JPMorgan Chase & Co./2010 Annual Report 287
Office of the SEC provided to Bear, Stearns & Co. Inc. The Firm has
been cooperating with all of these investigations, and is seeking to
resolve them on a negotiated basis.
Purported class action lawsuits and individual actions (the “Munici-
pal Derivatives Actions”) have been filed against JPMorgan Chase
and Bear Stearns, as well as numerous other providers and brokers,
alleging antitrust violations in the reportedly $100 billion to $300
billion annual market for financial instruments related to municipal
bond offerings referred to collectively as “municipal derivatives.”
The Municipal Derivatives Actions have been consolidated in the
United States District Court for the Southern District of New York.
The Court denied in part and granted in part defendants’ motions
to dismiss the purported class and individual actions, permitting
certain claims to proceed against the Firm and others under federal
and California state antitrust laws and under the California false
claims act. Subsequently, a number of additional individual actions
asserting substantially similar claims, including claims under New
York and West Virginia state antitrust statutes, were filed against
JPMorgan Chase, Bear Stearns and numerous other defendants.
Most of these cases have been coordinated for pretrial purposes in
the United States District Court for the Southern District of New
York. The Firm is seeking to have the balance of these cases coor-
dinated before the same court. Discovery is ongoing.
Following JPMorgan Securities’ settlement with the SEC in connec-
tion with certain Jefferson County, Alabama (the “County”) war-
rant underwritings and swap transactions, the County filed a
complaint against the Firm and several other defendants in the
Circuit Court of Jefferson County, Alabama. The suit alleges that
the Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3 billion in warrants issued
by the County and chosen as the counterparty for certain swaps
executed by the County. In its complaint, Jefferson County alleges
that the Firm concealed these third-party payments and that, but
for this concealment, the County would not have entered into the
transactions. The County further alleges that the transactions
increased the risks of its capital structure and that, following the
downgrade of certain insurers that insured the warrants, the
County’s interest obligations increased and the principal due on a
portion of its outstanding warrants was accelerated. The Court
denied the Firm’s motion to dismiss the complaint. The Firm filed a
mandamus petition with the Alabama Supreme Court, seeking
immediate appellate review of this decision. The petition is now
fully briefed and all proceedings have been stayed pending adjudi-
cation of the petition.
A putative class action was filed on behalf of sewer ratepayers
against JPMorgan Chase and Bear Stearns and numerous other
defendants, based on substantially the same alleged conduct
described above. The Firm’s motion to dismiss the complaint for
lack of standing was denied in January 2011.
Two insurance companies that guaranteed the payment of principal
and interest on warrants issued by Jefferson County have filed sepa-
rate actions against JPMorgan Chase (and one of the insurers has
also named Jefferson County) in New York state court asserting that
defendants fraudulently misled them into issuing the insurance cover-
age, based upon substantially the same alleged conduct described
above and other alleged non-disclosures. One insurer claims that it
insured an aggregate principal amount of nearly $1.2 billion in war-
rants, and seeks unspecified damages in excess of $400 million, as
well as unspecified punitive damages. The other insurer claims that it
insured an aggregate principal amount of more than $378 million
and seeks recovery of $4 million that it alleges it paid under the
policies to date as well as any payments it will make in the future and
unspecified punitive damages. In December 2010, the court denied
the Firm’s motions to dismiss each of the complaints and the parties
are currently engaged in discovery.
The Alabama Public Schools and College Authority (“APSCA”)
brought a declaratory judgment action in the United States District
Court for the Northern District of Alabama claiming that certain
interest rate swaption transactions entered into with JPMorgan
Chase Bank, N.A. are void on the grounds that the APSCA purport-
edly did not have the authority to enter into the transactions or,
alternatively, are voidable at the APSCA’s option because of its
alleged inability to issue refunding bonds in relation to the swaption.
The action was settled in December 2010 for a payment by APSCA
to the Firm and, pursuant to the settlement, the court dismissed the
action by order dated December 27, 2010.
Overdraft Fee/Debit Posting Order Litigation. JPMorgan Chase Bank,
N.A. has been named as a defendant in several purported class
actions relating to its practices in posting debit card transactions to
customers’ deposit accounts. Plaintiffs allege that the Firm improperly
re-ordered debit card transactions from the highest amount to lowest
amount before processing these transactions in order to generate
unwarranted overdraft fees. Plaintiffs contend that the Firm should
have processed such transactions in the chronological order they were
authorized. Plaintiffs seek the disgorgement of all overdraft fees paid
to the Firm by plaintiffs, since approximately 2003, as a result of the
re-ordering of debit card transactions. The claims against the Firm
have been consolidated with numerous complaints against other
national banks in Multi-District Litigation pending in the United States
District Court for the Southern District of Florida. The Firm’s motion to
compel arbitration of certain plaintiffs’ claims was denied by the
District Court. That ruling is currently on appeal. Discovery is proceed-
ing in the District Court. Plaintiffs’ motion for class certification is due
to be filed in April 2011.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain
of its affiliates, including One Equity Partners, LLC (“OEP”), have
been named as defendants in several actions filed in connection with
the receivership and bankruptcy proceedings pertaining to Thomas J.
Petters and certain entities affiliated with Petters (collectively, “Pet-
ters”) and the Polaroid Corporation. The principal actions against
JPMorgan Chase and its affiliates have been brought by the receiver
and bankruptcy trustee for Petters and generally seek to avoid, on
fraudulent transfer and preference grounds, certain purported trans-
fers in connection with (i) the 2005 acquisition of Polaroid by Petters,
which at the time was majority-owned by OEP; (ii) two credit facilities
that JPMorgan Chase and other financial institutions entered into