JP Morgan Chase 2013 Annual Report Download - page 321

JPMorgan Chase & Co./2013 Annual Report 327
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints relating
to interchange in several federal courts. The complaints
alleged that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. All cases were consolidated in the United States
District Court for the Eastern District of New York for
pretrial proceedings.
The parties have entered into an agreement to settle those
cases, for a cash payment of $6.05 billion to the class
plaintiffs (of which the Firm’s share is approximately 20%)
and an amount equal to ten basis points of credit card
interchange for a period of eight months to be measured
from a date within 60 days of the end of the opt-out period.
The agreement also provides for modifications to each
credit card network’s rules, including those that prohibit
surcharging credit card transactions. The rule modifications
became effective in January 2013. In December 2013, the
Court issued a decision granting final approval of the
settlement. A number of merchants have filed notices of
appeal. Certain merchants that opted out of the class
settlement have filed actions against Visa and MasterCard,
as well as against the Firm and other banks.
Investment Management Litigation. The Firm is defending
two pending cases that allege that investment portfolios
managed by J.P. Morgan Investment Management (“JPMIM”)
were inappropriately invested in securities backed by
residential real estate collateral. Plaintiffs Assured Guaranty
(U.K.) and Ambac Assurance UK Limited claim that JPMIM is
liable for losses of more than $1 billion in market value of
these securities. Discovery is proceeding.
Italian Proceedings.
City of Milan. 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 plc in
the District Court of Milan alleging a breach of advisory
obligations in connection with a bond issue by the City in
June 2005 and an associated swap transaction. The Firm
has entered into a settlement agreement with the City to
resolve the City’s civil proceedings.
Four current and former JPMorgan Chase employees and
JPMorgan Chase Bank, N.A. (as well as other individuals and
three other banks) were directed by a criminal judge to
participate in a trial that started in May 2010. As it relates
to JPMorgan Chase individuals, two were acquitted and two
were found guilty of aggravated fraud with sanctions of
prison sentences, fines and a ban from dealing with Italian
public bodies for one year. JPMorgan Chase (along with
other banks involved) was found liable for breaches of
Italian administrative law, fined €1 million and ordered to
forfeit the profit from the transaction (for JPMorgan Chase,
totaling €24.7 million). JPMorgan Chase and the individuals
are appealing the verdict, and none of the sanctions will
take effect until all appeal avenues have been exhausted.
The first appeal hearing took place in January 2014.
Parmalat. In 2003, following the bankruptcy of the
Parmalat group of companies (“Parmalat”), criminal
prosecutors in Italy investigated the activities of Parmalat,
its directors and the financial institutions that had dealings
with them following the collapse of the company. In March
2012, the criminal prosecutor served a notice indicating an
intention to pursue criminal proceedings against four
former employees of the Firm (but not against the Firm) on
charges of conspiracy to cause Parmalat’s insolvency by
underwriting bonds and continuing derivatives trading when
Parmalat’s balance sheet was false. A preliminary hearing is
scheduled for February 2014, at which the judge will
determine whether to recommend that the matter go to a
full trial.
In addition, the administrator of Parmalat commenced five
civil actions against JPMorgan Chase entities including: two
claw-back actions; a claim relating to bonds issued by
Parmalat in which it is alleged that JPMorgan Chase kept
Parmalat “artificially” afloat and delayed the declaration of
insolvency; and similar allegations in two claims relating to
derivatives transactions.
Lehman Brothers Bankruptcy Proceedings. In May 2010,
Lehman Brothers Holdings Inc. (“LBHI”) and its Official
Committee of Unsecured Creditors (the “Committee”) filed a
complaint (and later an amended complaint) against
JPMorgan Chase Bank, N.A. in the United States Bankruptcy
Court for the Southern District of New York that asserts
both federal bankruptcy law and state common law claims,
and seeks, among other relief, to recover $8.6 billion in
collateral that was transferred to JPMorgan Chase Bank,
N.A. in the weeks preceding LBHI’s bankruptcy. The
amended complaint also seeks unspecified damages on the
grounds that JPMorgan Chase Bank, N.A.’s collateral
requests hastened LBHI’s bankruptcy. The Court dismissed
the counts of the amended complaint that sought to void
the allegedly constructively fraudulent and preferential
transfers made to the Firm during the months of August and
September 2008.
The Firm has also filed counterclaims against LBHI alleging
that LBHI fraudulently induced the Firm to make large
clearing advances to Lehman against inappropriate
collateral, which left the Firm with more than $25 billion in
claims (the “Clearing Claims”) against the estate of Lehman
Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. LBHI
and the Committee have filed an objection to the claims
asserted by JPMorgan Chase Bank, N.A. against LBHI with
respect to the Clearing Claims, principally on the grounds
that the Firm had not conducted the sale of the securities
collateral held for such claims in a commercially reasonable
manner. The Clearing Claims, together with approximately
$3 billion of other claims of the Firm against Lehman
entities, have been paid in full, subject to the outcome of
the objections filed by LBHI and the Committee. Discovery is
ongoing.
LBHI and several of its subsidiaries that had been Chapter
11 debtors have filed a separate complaint and objection to
derivatives claims asserted by the Firm alleging that the
amount of the derivatives claims had been overstated and