JP Morgan Chase 2012 Annual Report Download - page 313

JPMorgan Chase & Co./2012 Annual Report 323
settlement agreement with the OCC and the Federal Reserve
providing for the termination of the Independent
Foreclosure Review programs that had been required under
the Consent Orders with such banking regulators relating to
each bank’s residential mortgage servicing, foreclosure and
loss-mitigation activities. Under this settlement, the Firm
will make a cash payment of $753 million into a settlement
fund for distribution to qualified borrowers. The Firm has
also committed an additional $1.2 billion to foreclosure
prevention actions under the settlement, which will be
fulfilled through credits given to the Firm for modifications,
short sales and other types of borrower relief.
Municipal Derivatives Investigations and Litigation.
Purported class action lawsuits and individual actions have
been filed against JPMorgan Chase and Bear Stearns, as
well as numerous other providers and brokers, alleging
antitrust violations in the market for financial instruments
related to municipal bond offerings referred to collectively
as “municipal derivatives.” In July 2011, the Firm settled
with federal and state governmental agencies to resolve
their investigations into similar alleged conduct. The
municipal derivatives actions were consolidated and/or
coordinated in the United States District Court for the
Southern District of New York. In December 2012, the
District Court granted final approval of a settlement calling
for payment of approximately $43 million. Certain class
members opted out of the settlement, including 27
plaintiffs named in individual actions already pending
against JPMorgan.
In addition, civil actions have been commenced against the
Firm relating to certain Jefferson County, Alabama (the
“County”) warrant underwritings and swap transactions. In
November 2009, J.P. Morgan Securities LLC settled with the
SEC to resolve its investigation into those transactions.
Following that settlement, the County filed an action against
the Firm and several other defendants in Alabama state
court. An action on behalf of a purported class of sewer rate
payers has also been filed in Alabama state court. The suits
allege 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 to act as the
counterparty for certain swaps executed by the County. The
complaints also allege that the Firm concealed these third-
party payments and that, but for this concealment, the
County would not have entered into the transactions. The
Court denied the Firm’s motions to dismiss the complaints
in both proceedings. In November and December 2011, the
County filed notices of bankruptcy with the trial court in
each of the cases and with the Alabama Supreme Court
stating that it was a Chapter 9 Debtor in the U.S.
Bankruptcy Court for the Northern District of Alabama.
Subsequently, the portion of the sewer rate payer action
involving claims against the Firm was removed by certain
defendants to the United States District Court for the
Northern District of Alabama. In its order finding that
removal of this action was proper, the District Court
referred the action to the District’s Bankruptcy Court, where
the action remains pending. Limited discovery has taken
place in the County’s action and additional discovery may
take place in 2013.
In September 2012, a group of purported creditors of the
County initiated an adversary proceeding and filed a
purported class action complaint alleging that certain
warrants were issued unlawfully and were thus null and void
and seeking $1.6 billion in damages from the Firm and
other defendants involved in the Jefferson County financing
transactions. The Firm, along with a number of other
defendants, moved to dismiss the complaint in November
2012. Plaintiffs subsequently agreed to dismiss their tort
claims seeking damages and are solely pursuing their
claims relating to the validity of the warrants. The motion to
dismiss these claims remains pending.
Two insurance companies that guaranteed the payment of
principal and interest on warrants issued by the County
have filed separate actions against the Firm in New York
state court. Their complaints assert that the Firm
fraudulently misled them into issuing insurance 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 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
allegedly paid under the policies to date as well as any
future payments and unspecified punitive damages. In
December 2010, the court denied the Firm’s motions to
dismiss each of the complaints. The Firm has filed a cross-
claim and a third party claim against the County for
indemnity and contribution. The County moved to dismiss,
which the court denied in August 2011. In consequence of
its November 2011 bankruptcy filing, the County has
asserted that these actions are stayed. In February 2012,
one of the insurers filed a motion for a declaration that its
action is not stayed as against the Firm or, in the
alternative, for an order lifting the stay as against the Firm.
The Firm and the County opposed the motion, which
remains pending.
Option Adjustable Rate Mortgage Litigation. The Firm is
defending one purported and three certified class actions,
all pending in federal courts in California, which assert that
several JPMorgan Chase entities violated the federal Truth
in Lending Act and state unfair business practice statutes in
failing to provide adequate disclosures in Option Adjustable
Rate Mortgage (“ARM”) loans regarding the resetting of
introductory interest rates and that negative amortization
was certain to occur if a borrower made the minimum
monthly payment. With respect to the former Washington
Mutual and Bear Stearns defendants who purchased Option
ARM loans from third-party originators, plaintiffs allege
that those entities aided and abetted the original lenders’
alleged violations. Classes have been certified in three of
the actions. In one of the certified class actions, the Firm
has moved for decertification of the class and for summary